India cement pricing power may remain muted amid consolidation moves: Citi

The entry of billionaire Gautam Adani into India’s cement sector appears to have spurred consolidation in the industry. After acquiring Ambuja Cements and ACC to become the nation’s second-largest cement maker, the Adani Group is now said to be in talks to buy the Jaypee Group’s cement businesses.

However, even amid the significant scope for consolidation, cement pricing is expected to remain muted, according to foreign brokerage Citi. It said small cement companies will be bought out, largely by the Adani Group, and its ability to service debt at reasonable EBITDA/tonne levels may not encourage price increases.

The brokerage upgraded Ambuja to a ‘buy,’ and downgraded JK Cement to a ‘sell’ and Dalmia Bharat to ‘neutral’ while changing their share price targets. According to the 89-page report dated October 13, Citi reiterated a ‘buy’ on ACC, Ultratech Cement, Grasim, and Nuvoco.

The brokerage said Adani could be eyeing as much as 80 million tonnes of capacity addition through inorganic growth as it seeks to increase its production capacity.

Following are Citi’s rating stances:
Ambuja Cement
Rating: Upgraded to buy from sell
Target price: Rs 610 from Rs 340
Reason: Growth, efficiencies, potential merger benefits

JK Cement
Rating: Downgraded to sell from neutral
Target price: Rs 2,400 from Rs 2,650
Reason: Risk-reward unfavourable with material changes in industry structure likely

Dalmia Bharat
Rating: Downgraded to neutral from buy
Target price: Rs 1,650 from Rs 1,775
Reason: Outperformance may reverse on lack of growth/cash clarity

Citi maintained its rating stance on the following counters but changed their share price targets:
1. ACC: Buy. TP revised to Rs 2,900 from Rs 2,460
2. Grasim Industries: Buy. TP revised to Rs 1,950 from Rs 1,700
3. Nuvoco Vistas: Buy. TP revised to Rs 475 from Rs 345
4. Shree Cement: Sell. TP revised to Rs 19,500 from Rs 19,250
5. Ramco Cement: Sell. TP revised to Rs 635 from Rs 575
6. Ultratech Cement: Buy. TP revised to Rs 7,200 from Rs 7,100.