Trade Talk | Weak Monsoon, Price Hikes To Aide Cement Industry?
Sharekhan's Ronald Siyoni on what's helping the cement sector build gains.
All this and more on Trade Talk with Alex and Hiral. #BQLive
All this and more on Trade Talk with Alex and Hiral. #BQLive
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00:00 Good morning and thanks so much for tuning in.
00:02 You are watching Trade Talk on B2P.
00:04 My name is Alex Mathew and with me as always is Heeral Dattia.
00:07 Good morning, Heeral.
00:08 Good morning, Alex.
00:09 The big story from overnight has to do with crude oil prices with the extension of the
00:12 cuts by Saudi Arabia and of course OPEC plus and Russia on the other side extending all
00:18 the way to December and that has an implication for crude oil prices, bent crude above $90
00:23 to the barrel with a weaker rupee, bless you, with a weaker rupee and the higher crude prices
00:29 is not the best news for the Indian economy.
00:32 Absolutely.
00:33 I mean, it's bless us for the way crude has been moving the rupee.
00:37 So these are the two factors that could actually place false port from here on as well because
00:42 the kind of reaction it could have not only from, you know, individual stock perspective,
00:47 but even from the calculations at the sentiment level as well as from a macro perspective,
00:54 the way you're going to calculate your inflation, the numbers that we've taken into consideration,
00:58 a lot of things can change if it sustains above those 90 levels already.
01:02 And in the very short term since Friday, you've seen an up move in the benchmark as well as
01:07 the broader markets that continued yesterday.
01:09 You saw just about a quarter of a percent gains for the benchmark index, quite a lot
01:14 of interesting play.
01:15 And yesterday you were talking to or rather day before you were talking to technical experts
01:19 that were pointing to the possibility of us hitting 20,400 by the end of September.
01:25 Perhaps we'll have to relook at those.
01:26 Absolutely.
01:27 And with that, if you see, you know, the markets have continued to remain range bound.
01:31 So that is one aspect that we need to consider.
01:33 But the bias continues to remain positive as well.
01:36 Now, clearly, if you see, we've closed below that 19,600 mark marginally in trade yesterday.
01:43 The broader markets, as always, have continued to outperform.
01:46 And it's a four-week high that we are seeing in terms of Indian stocks.
01:50 The FI flows, which we were betting big on, now that could be impacted as well on the
01:55 way the rupee has been panning out.
01:57 So that's going to be a key monitorable for us to watch out for as to how volatile the
02:01 rupee remains as well as the kind of impact it is having on the FI flows as well.
02:06 But overall, we are comfortably trading about the 50 and the 20 DSMA.
02:10 19,500 is going to now become the key support level in terms of Nifty 50.
02:15 But if we continue to trade below 19,500, then the bulls may actually prefer to exit
02:20 their long positions.
02:21 And that could become a negative sentiment, which could pull us lower as well.
02:25 Moving on, if you see, in terms of the options data, the highest put OI is at 19,500, whereas
02:30 the highest call OI is at levels of around 19,600.
02:35 Looking at individual stocks, which have actually risen with high volumes, you have Aditya Birla
02:39 Fashion, Zee Entertainment, Jubilee Foodworks, Petronet LNG, as well as Glenmark Pharma.
02:44 So these are a few of the names that we will continue to monitor in today's session as
02:48 well.
02:49 But with all of this, taking into consideration the way crude prices are panning out, one
02:55 of the key monitor bulls from here on is going to be, as we mentioned about inflation, rainfall
03:01 has been a negative as well in the month of August.
03:03 But it's augured well in terms of cement players, Alex.
03:07 Yes.
03:08 So we've seen that there have been price increases.
03:10 And even if you look at the basket of stocks, the likes of Altratec, Cement, ACC, as well
03:15 as Shree Cement in particular, the month of September so far has been a very good start
03:20 for them.
03:21 And this is, of course, as I mentioned, on account of those price increases after a bit
03:26 of a lull in August.
03:28 We've got Rishi standing by to lay the context for what will hopefully be a very interesting
03:33 conversation for you to watch.
03:35 But Rishi, cement, as Hiral pointed out, in focus.
03:39 What is the context that you can tell us about?
03:40 So recently, that is in September, at the start of September, cement makers have hiked
03:45 the prices by about 10 to 35 rupees per bag.
03:48 Now, this is because they are expecting the strong construction demand to continue, given
03:53 that the monsoons have already remained weak.
03:55 So a weaker monsoon has also ensured that the constructions are less interrupted and
03:59 therefore it has augured well for cement players.
04:01 Now, what remains to be seen is how much of the price hike is actually absorbed.
04:05 Because even if you see in August, the prices actually declined by about 1 to 2 percent
04:10 since July and for the quarter as well.
04:12 The prices have been higher in only two of the five regions.
04:16 Now, volumes were the highlight for the cement companies in the first quarter and analysts
04:21 expect the strong volumes to drive Q2 performance as well.
04:25 Now, this is because apart from the weaker monsoons, there's also a pre-election year
04:30 where there's a lot of boost for infrastructure than usual.
04:33 So that is also driving a lot of volumes.
04:36 According to MK's checks, volumes have already grown in low teens year on year in Q2 up till
04:42 now, with East and West regions are likely to lead in volumes.
04:46 Accordingly, FY24 is also likely to be the third consecutive year of strong demand with
04:51 a double-digit volume growth.
04:54 Now, despite the recent uptick in petco prices, from their bottom input costs are still expected
05:00 to be much lower this quarter and accordingly, the margins are expected to improve.
05:06 But however, the extent of margin improvement will all depend on how much of the price hike
05:09 is actually absorbed.
05:10 That's going to be an interesting factor to watch out for as well.
05:13 Thank you, Rishi, for getting us all the details.
05:15 Now, let's welcome in our guest as well.
05:18 Joining us on the show now, we have Ronald Sioni, Associate Vice President, Research
05:23 Analyst, Sher Khan by BNP Paribas.
05:26 Ronald, good morning and thank you for joining us.
05:29 Yeah, good morning.
05:31 Ronald, my first question coming to you is, Rishi was just taking us through the kind
05:37 of price hikes that have been taken in the month of September, around 10 to 35 rupees
05:41 per bag is what we are looking at.
05:44 Now, the first question is, are markets ready to absorb this price hike as of now, taking
05:51 the way the demand has been panning out?
05:54 Yes, so on the demand front, as we have seen, July has been impacted by monsoons.
06:01 But if we see the cement transported through rail in the month of August, which has seen
06:07 10 to 11% YY growth and about 8 to 9% month-on-month growth.
06:13 So August has been a good month in terms of demand.
06:17 And September is also expected to see around 10% kind of YY growth for cement players.
06:27 So this has been the key factor in letting the cement players dry month of August and
06:35 good demand.
06:36 Apart from there is a uptick in pet coke and coal prices, which we have seen during the
06:42 month of August and September.
06:44 So these three factors have led to a little bit uptick in September prices, especially
06:50 in the eastern region, where we have seen 35 rupees per bag increase from the first
06:55 week of September.
06:56 So another 35 rupees per bag they are planning by the weekend.
07:02 But we need to check whether such a big hike can be absorbed in the September month.
07:11 So Ronald, what are the implications of what you're talking about right now, one on the
07:17 input cost side and also the attempts by the cement companies to raise prices on the operations
07:24 for this quarter as well as the rest of the financial year?
07:27 Are you changing your base case assumptions at all?
07:30 And what are your top picks in terms of performance?
07:32 We'll get to stock price in a bit, but performance and operations, what according to you will
07:37 stand out?
07:38 So this quarter's performance, demand environment continues to be good.
07:45 So they should all very well.
07:46 Cement prices also expected to be a little bit flattish because there was a little bit
07:53 downturn in August.
07:54 But July and September months are going to be good in terms of prices.
07:58 So a little bit flattish kind of quarter on quarter realizations can be expected during
08:04 this quarter.
08:05 So we expect from the healthy volume growth despite the seasonally weak quarter, which
08:10 is quarter two.
08:12 So historically, comparing this quarter to the previous periods, this quarter should
08:18 be better in terms of volumes and realization.
08:22 But on the input cost front, the petcoke and coal prices, the companies would have procured
08:28 at lower prices than what they are trading right now.
08:33 So this in the last over the last six months or so.
08:36 So this would get reflected in this quarter and quarter two.
08:40 So you should also expect, you know, sequential decline in power and fuel costs this quarter.
08:47 So this all should help, you know, in improvement in operational profitability.
08:52 But we cannot compare it quarter on quarter.
08:56 But, you know, a seasonal comparison, this quarter two should be better in terms of overall
09:01 performance in terms of say volumes or serializations or input cost.
09:07 But the recent uptick in the petcoke or coal prices will start getting reflected from quarter
09:13 four onwards.
09:14 So quarter two and quarter three are expected to be good enough in terms of input cost pressures.
09:21 If I talk about petcoke prices like domestic petcoke prices, you know, have risen by about
09:27 20 percent from the recent lows, which we have seen during June, July months.
09:35 But they are still trading lower by about 35, 36 percent from the high we have seen
09:40 last year.
09:42 So also coal prices, you know, they are up 25 percent from the lows which we have seen
09:47 in June, July.
09:48 So, yes, the petcoke prices and coal prices are up 20 to 25 percent from the lows, but
09:54 they are still trading lower compared to by a while.
09:57 Right.
09:58 So overall, help us understand now from a stock specific perspective with the kind of
10:04 moves that we've already seen in the last one month and where valuations stand, which
10:10 cement companies would be good, you know, buying opportunities at current levels as
10:15 well if you have to take the next six to eight months into perspective?
10:19 Yes, so rightly, you know, post the news regarding, you know, increase in cement prices, the stocks
10:28 have run up a little bit in the recent period.
10:32 But still, you know, now after this H2, you know, people will look forward to, you know,
10:39 September 2025 earnings or maybe FY26 valuations because the growth story is a longer story
10:48 over the five years kind of structural growth story.
10:52 So the people may not, you know, look over the near term, say, for FY25 kind of earnings
10:58 multiple.
10:59 So hence, you know, the earnings, the multiples valuations would get shifted to September
11:05 2025 or say FY26 earnings.
11:07 And this should leave an upside on many of the stocks.
11:11 So currently, we have a, you know, buy rating on Ultratech, we have a buy rating on Ramco
11:17 Cement, J.K.
11:18 Laxmi Cement, while we have a hold rating on Sri Cement and Dalmia Bharat because of
11:23 the valuations they are trading at.
11:26 But for Ultratech, Dalmia Bharat and J.K.
11:28 Laxmi Cement, for Ultratech, sorry, Ultratech, J.K.
11:33 Laxmi Cement and then Ramco Cement, we are positive on the outlook going ahead.
11:38 And we have a buy recommendation on these stocks.
11:40 All right.
11:41 Thanks so much, Ronald, for giving us those updates and in fact, for sharing your calls.
11:47 Let's shift gears and talk about a stock that we've been speaking about for a few weeks
11:51 now.
11:52 It has, if you can call it that, overstayed its welcome on some of the indices.
11:58 GeoFinancial Services made its way off the BSE indices and now we've got a date for the
12:02 NSE indices as well.
12:03 We've got Hemansh to give us some perspective on that.
12:05 Hemansh, morning.
12:06 Hi, good morning, Alex.
12:07 So GeoFinancial Services, one can say the stock has had a very bumpy ride since its
12:12 listing.
12:13 So GFS shares are expected to be removed from NSE indices from tomorrow onwards as the shares
12:18 did not hit the price band for two consecutive trading sessions, which was on Monday and
12:23 Tuesday.
12:25 Now, the stock has lost its value from its listing price of 265 and it has wiped almost
12:32 6200 crores in terms of market capitalization.
12:36 Now the delisting was expected with several index funds selling, leading to the stock
12:41 being locked in the lower circuit for as much as five consecutive sessions in its early
12:45 days.
12:46 This kept delaying the removal process from these indices.
12:49 Now it's not just like you mentioned, BSE removed GFS from its indices on September
12:54 1 and other indexes such as FTSE and MSCI, although continue to retain GFS on their indices.
13:01 Novama Wealth expects passive funds to adjust their index weights during the last 30 minutes
13:11 of trade today.
13:13 It estimates the passive funds will need to sell about 105 million worth of GFS shares,
13:18 which are valued at approximately 2700 crores.
13:22 They expect that with the revised 20% price band from BSE, now the exclusion process of
13:28 GFS will be much easier going forward.
13:31 That's going to be interesting to watch out for as well because initially we always saw
13:35 it locked in lower circuits.
13:36 Then it started to see that kind of up move as well.
13:39 So the kind of market cap erosion or addition is going to be interesting to calculate and
13:44 watch out for in terms of the GFS and what the shareholders have made out of it.
13:49 And once things settle, right, so once all of the selling by the passive funds gets done,
13:54 then you can actually see where the price settles eventually.
13:57 And also business updates that will follow in the coming weeks.
14:00 There is a lot of buzz about acquisitions that could be taking place.
14:04 Absolutely.
14:05 Acquisitions as well as the way they are planning to strategize in terms of formation of the
14:09 various verticals.
14:10 And key management personnel.
14:11 Exactly.
14:12 So a lot of things that could be brewing with regards to GFS.
14:16 Thank you, Himansh, for getting us the details.
14:17 But moving on, a lot of other names that will continue to remain in focus in today's session.
14:22 You have the likes of NBCC, Vedanta.
14:25 These are a few of the names which Saloni has been tracking.
14:28 Good morning, Saloni.
14:29 What do you have for us?
14:30 Good morning, Neera.
14:31 So we have a lot of companies across various sectors in focus today.
14:35 So first we've got Vedanta.
14:37 So the company will restart its copper operations in Zambia after the Zambian government made
14:42 a decision in favor of the company.
14:45 The ownership and management of Konkola Copper Mines has been returned to the company by
14:49 the government of Zambia.
14:50 Konkola Copper Mines is a world-class asset having reserves of 16 million tons of contained
14:56 copper and has a copper grade of 2.3 percent.
14:59 Currently, India is over 90 percent dependent on imports for copper concentrate and over
15:04 40 percent dependent on imports for finished copper.
15:07 So this is going to be an interesting stock to watch out for in trade today.
15:11 Then we've got NBCC India that signed a memorandum of understanding with Kerala State Housing
15:16 Board.
15:17 This MOU is for the development of 17.9 acres of land parcel of Kerala State Housing Board
15:23 in Kochi.
15:24 This product is valued at approximately 2000 crores.
15:29 Then we've got Gale.
15:30 So the Central Bureau of Investigation arrested K.B.
15:32 Singh, the executive director of Gale, and three other Gale personnel in an alleged 50
15:38 lakh bribery case.
15:39 Additionally, two other people from outside the company were also arrested.
15:43 It is alleged that these bribes were offered to a Vadodara-based company for the contract
15:48 of two pipeline projects.
15:49 Fourth, we've got Power Grid Corporation of India that was declared as a successful bidder
15:54 under the tariff-based competitive bidding to establish an interstate transmission project
16:00 for the evacuation of power from the renewable energy zone in Rajasthan.
16:04 This project is on a build, own, operate and transfer basis.
16:08 And the letter of intent for this was received by the company on the 4th of September.
16:12 Lastly, we have news on Bikaji Foods International that saw a bunch of large blocks of shares
16:18 trade hands yesterday.
16:19 So, Lighthouse India Fund sold 32.42 lakh shares that represented 1.3% stake at Rs.
16:27 480 apiece.
16:29 And Plutus Wealth Management bought 13.5 lakh shares that represented 0.54% stake at Rs.
16:37 480.11 apiece.
16:38 Alright, there's also an update interestingly on the Class 8 trucks.
16:44 Thanks Saloni for giving us those updates.
16:47 The latest update, in fact, just before we started the show, the orders from US Class
16:53 8 trucks in the month of August has come in at 28% lower year on year.
16:58 Yeah, at 15,400.
16:59 But what's interesting is, though it's lower by 28% on a year-on-year basis, on a month-on-month
17:05 basis, we have seen an increase as well.
17:08 So I think if I'm not mistaken, this would be the highest in the last four or five months.
17:12 So the trajectory seems it's going pretty good.
17:16 So we should be watching out for Ramakrishna as well as Bharat Forge.
17:20 They will react in trade.
17:21 So watch out for those.
17:23 More updates from the primary market.
17:24 It's seen a lot of action in the recent past.
17:26 And Mika is joining in to give you the latest update here.
17:29 Mika, what do you have for us today?
17:31 Good morning.
17:32 So Jupiter Lifeline Hospitals will launch its initial public offering today.
17:37 And the IPO will be live till September 8.
17:40 The multi-speciality hospital plans to raise Rs. 869.08 crore via a fresh issue and an
17:47 offer for sale.
17:48 The fresh issue will stand at a size of Rs. 542 crores, while the offer for sale is worth
17:53 Rs. 327 crores, which will offload 44.5 lakh shares.
18:00 The price band is set between the range of Rs. 695 to Rs. 735 per share.
18:06 And the IPO proceeds will be used for the repayment of the borrowings from banks by
18:10 the company and other general purposes.
18:12 A little bit about the business.
18:14 It was founded in 2007.
18:16 And the company is a multi-speciality tertiary healthcare provider in Western India and currently
18:22 operates in three hospitals at Thane, Pune and Indore.
18:26 As of March 31, its total operational capacity included 1,194 beds and 1,246 doctors.
18:34 The company is also currently building its fourth hospital in Dombivali, which will have
18:38 a capacity of 500 beds.
18:40 In terms of the company financials, Jupiter's revenue has almost tripled from FY21 to FY23.
18:46 Its EBITDA margins have improved from 13% in FY21 to 22% in FY23.
18:51 And in terms of profit, the company recorded a Rs. 72 crore net profit in FY23 compared
18:57 to the Rs. 22 crore net loss in FY21.
19:00 So that's interesting to watch out for in terms of where Jupiter Lifeline goes.
19:05 And overall, the IPO market has been buzzing as well, Alex.
19:09 But clearly, the focus today is absolutely...
19:11 Thanks, Mika, for getting us these updates as well.
19:14 But the focus today, Alex, is going to be absolutely with regards to the way the rupee
19:18 has been panning out, the way oil has been moving, because you're going to see a direct
19:22 impact with regards to where all the marketing companies go.
19:25 Plus, you have your paint companies also that continue to see some bit of a downtick.
19:30 Last couple of trading sessions, you are seeing that already.
19:33 That's been playing out with names like Asian Paints, Berger, all of them have been in focus
19:37 as well.
19:38 And that sector rotation that's happening is also very interesting because, again, you
19:42 do have media which has started to pick up, logistic names that have started to pick up,
19:47 and you have banks which have continued to underperform Nifty Fifty.
19:50 Oh, certainly.
19:51 And of course, that overarching concern about the economic implications of higher crude
19:57 and a weaker rupee.
19:58 We'll get you all of those updates over the course of the day.
20:02 But at the end of this particular edition of Trade Talk, there's lots more coming up
20:06 in just a bit.
20:07 This is BQ Prime.
20:08 Thanks for having me.
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