look news india
Amid the infrastructure and construction boom in the domestic stock market, there is strong movement in selected small-cap and mid-cap shares of the cement sector. According to recent shareholding pattern data, promoters hold a strong 72% stake in a leading cement stock trading at around ₹111. Along with this, foreign institutional investors (FIIs) have also attracted the attention of the market by increasing their stake in the company.
When promoters’ stake in a company is more than 70%, it shows that the company’s founders have deep confidence in the future and growth pace of their business. At the same time, fresh buying by foreign portfolio investors (FPIs/FIIs) proves that both the company’s valuation and earnings growth outlook look attractive by global standards. In this background, the leading brokerage house has given a BUY opinion on this stock and has estimated an upside target of up to 30%.
The brokerage house has adopted a bullish stance on the stock after doing a detailed analysis of the company’s financial performance, production capacity and volume growth in its research report. Analysts have highlighted the following key points behind this rally:
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Strong shareholding structure: Promoter stake of more than 72% and increasing stake of FIIs makes it clear that the floating stock in the market is limited, which increases the possibility of a sharp rise in the stock as demand increases.
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Capacity Expansion and Capex: The company has completed new capex to expand production capacity at its key plants, which is expected to deliver double-digit growth in cement dispatch volumes in the coming quarters.
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Fuel cost moderation and margin recovery: Due to stability in petcoke and coal prices at international level, power and fuel costs of cement companies have reduced, which will have a direct positive impact on EBITDA per ton.
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Strong demand from infrastructure and housing sectors: The rapid progress of expressways, highways, railway corridors and affordable housing projects across the country is driving cement consumption to new heights year after year.
At the current price level of ₹111, the stock is available at a discount to its historical P/E multiple and other sector peers. The debt-to-equity ratio of the company is in a very controlled condition, due to which there is no burden of additional interest on the company’s profits even in the era of rising interest rates.
The brokerage estimates that if the company’s volume growth continues at this pace in the next two to three quarters, the share price can easily touch the level of ₹144 to ₹145 from the current level of ₹111, which represents a direct return of about 30%.
The cement sector has always been an important cyclical play for retail investors investing in the domestic stock market from Lucknow, Kanpur, Delhi, Jaipur or Mumbai. After the festive season and with the departure of monsoon, construction activities reach their peak across the country, the direct benefit of which is reflected in the financial results of cement companies.
However, it is mandatory to take care of stoploss and risk management while investing in any small-cap stock. The brokerage advised that to achieve potential returns of 30%, investors should accumulate on dips with a 9 to 12 month horizon to protect the portfolio from short-term market fluctuations.