Union Budget 2024 Alters Focus to Bihar and Andhra Pradesh: Cement Stocks to Monitor

Significant opportunities for key participants in the sector have been generated by the slight increase in cement demand that has been generated by the Union Budget 2024. Ultratech Cement Ltd, Ambuja Cements, and Ramco Cements are anticipated to benefit from an increase in housing capex and a transfer in road capex to the Eastern and Southern regions, according to Nomura India.

The influence on the demand for cement

Approximately 10 million tonnes (MT) of cement volumes could be increased by an increased allocation to housing, according to Nomura India. Ultratech Cement is the most prominent company in Bihar and Eastern India, with the maximum volume share. Ambuja Cements (Adani Cement) and Nuvoco Vistas Corporation Ltd. are the next closest companies.

Regional Concentration

The Budget places a strong emphasis on the advancement of Bihar and Andhra Pradesh. Road connectivity initiatives in Bihar, such as major expressways and bridges, have been allocated ₹26,000 crore by the government under the Purvodaya initiative. Concurrently, the Andhra Pradesh Reorganization Act has allocated ₹15,000 crore to Andhra Pradesh.

Major Players to Benefit

Ultratech and Ramco, which possess the highest deployed capacity share in Andhra Pradesh and the Southern region, are anticipated to capitalize on the expansion of capital expenditures in these respective regions. According to Nomura India, the road connectivity initiatives alone are expected to result in an incremental cement volume of approximately 4MT.

Industry Prognosis

It is noteworthy that the project concentration has shifted to the Eastern region, despite the fact that the headline infrastructure capex numbers unchanged from the interim budget. This region’s cement companies are likely to benefit from the central government’s increased emphasis on these regions.

Compared to FY24RE and FY25(I)BE, Nomura India anticipates a 29% and 9% increase in cement demand from government capex and welfare programs, respectively. In the post-election year, the brokerage predicts an 8% increase in overall volume, with a 5.1% year-over-year volume growth for FY25.

Recommended Stocks

Nomura India maintains a favorable outlook regarding the cement sector’s long-term prospects as a result of moderated petroleum costs, higher volume growth, and a more favorable pricing environment that has emerged as a result of sector consolidation. An 18% premium to its three-year average one-year forward EV/Ebitda is currently being traded by the sector.

The top choices of Nomura are as follows:

For purchase, Ambuja Cements

Shree Cements Buy

The purchase of Ultratech Cements is recommended.

(Buy) Ramco Cements (Buy) Nuvoco Vistas

Ultratech, Ramco, and Ambuja Cements are poised for growth as a result of the Union Budget 2024, which prioritizes regional development and increased capital expenditures in critical states such as Bihar and Andhra Pradesh. Considering the sector’s promising long-term trends, which are driven by government initiatives and market dynamics, investors should evaluate these equities.

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