Manali Bhatia
Healthy volume and value growth during the last year proved to be a win-win situation for the cement sector. Volume growth was around 12 percent, above expectations led by a sharp increase in infra, housing and affordable housing spend.
In FY20, we expect it to further grow 5-6 percent, which is quite decent due to a higher base. However, it should be noted that incremental capacity would be around 18-20 MTPA, while incremental production would be higher by 24-25 MTPA, providing pricing power and stability to companies.
Last year, the capacity utilisation for the sector was presumed in the range of 68-69 percent but actullay it came at 71 percent which, we expect to reach 72-73 percent in FY20 due to incremental demand and production.
Low raw material cost for the sector increased the bottomline during Q4FY19. Softening of pet coke prices to $96/tonne during February 2019, easing crude prices and freight expenses have helped companies to increase realisations and deliver higher margins.
In FY20, key watchable points for the sector would be crude oil prices, pet coke prices and demand growth in Q2FY20. A number of developmental projects and demand from the housing sector will also be in focus.
Top picks in cement sector: UltraTech Cement, Ambuja Cements, Shree Cements and HeidelbergCement India
Pharma sector to excel after dwindling for years
Pricing pressure from the US has toned down and the channel consolidation has already formed a new normal. Companies into specialty drugs, injectables and biosimilars are expected to benefit in the long run after dwindling for years.
Though increase in R&D spends by various private players has driven sector growth to 10 percent as on February 19, but we expect this to cool down to 8-9 percent for the next two years.
We expect China to be the next likely hub for India’s exports as it holds huge potential and the government is keen to increase exports there. In addition, regular acquisitions and diversification by companies mainly in Europe and Japan (being the second largest regulated market) is expected to not only increase their footprint but also reduce the dependence on the US market.
Even in India, this sector is expected to pick up pace. Medicine spending is projected to grow 9-12 percent over the next five years. Moreover, government push towards this sector in terms of introducing various generic drugs, rising awareness for health, launch of Pradhan Mantri Bhartiya Jan Aushadhi Pariyojana Kendra (PMBJPK) and pharma vision 2020 would improve growth.
Currency fluctuations, various regulatory approvals, sustained retention in client growth will remain the key risks.
Top picks in pharma sector: Ipca Labs, Biocon, Strides Pharma and Aurobindo Pharma
The author is Senior Research Analyst at Rudra Shares & Stock Brokers Ltd.
Disclaimer: The views and investment tips expressed by investment expert on moneycontrol.com are her own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
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