UBS upgrades UltraTech Cement, Dalmia Bharat, Ambuja Cement to 'buy', shares jump up to 3%

Shifts to renewable energy, better logistics, and waste heat recovery systems are expected to boost profitability for cement players.

Global broking firm UBS turned optimistic on the cement sector, as the brokerage expects demand to bounce back and make a firm recovery in the upcoming fiscal year. The rough patch seen in the sector, leading to soft demand, falling prices, poor volume growth, is likely to come to an end.

The brokerage is positive on the sector, citing structural cost savings, price stabilization after an 8 percent decline in 9MFY25, and sector consolidation led by UltraTech Cement and Ambuja Cement.

UBS has upgraded its ratings on several cement stocks, raising target prices across the board. UltraTech Cement has been upgraded to a 'buy' call, with the target price increased to Rs 13,000 per share from Rs 9,000.

Ambuja Cement also received an upgrade to 'buy' from UBS, with its target price raised to Rs 620 from Rs 475. Dalmia Bharat was upgraded with a target price of Rs 2,100 per share, while ACC retained its 'buy' rating with a target price of Rs 2,250.

UBS expects that the market share of the top two cement manufacturers will grow from 33 percent in FY24 to 44 percent by FY30, while the combined share of the top four players will rise from 48 percent to 61 percent.

At 9.20 am, UltraTech Cement shares were higher by 3.1 percent at Rs 11,393.65, while Ambuja Cements and Dalmia Bharat's respective stock prices soared 2.1 percent and 1.9 percent respectively, to Rs 529.9 and Rs 1,777.45 each. ACC shares also jumped 1.2 percent to Rs 1,957 apiece.

Follow our live blog to catch all the market updates

The brokerage believes as the strong consolidation within the cement space continues, the existing market leaders have an advantage. Additionally, a housing upcycle and a revival in government capex are expected to drive demand for cement.

With the sector trading slightly above its five-year mean on a one-year forward EV/EBITDA basis, market leaders are well-positioned to benefit as consolidation continues.

Further, according to UBS, a series of factors will help lower costs in the cement sector, including a transition to renewable energy, greater use of waste heat recovery systems, reduced freight costs due to increased rail transport, and improved logistics driven by mergers.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.