>CEMENT SECTOR: 3 favorable trends, 3 positive expectations; Upgrading EPS 4-6%; potential for further 10-20% upgrade

Trend #1 Strong realizations across companies, beating estimates by wide margins
Trend #2 In-line costs, with no major surprises; cost push showing signs of moderation
Trend #3 Meaningful upgrades across companies; street yet to catch up

Expectation #1 Stabilizing cost factors should assuage cost inflation
Expectation #2 Strong realizations even in monsoon season to drive further upgrades
Expectation #3 Meaningful upgrades in consensus estimates to drive stock prices

Prefer Ambuja and UltraTech/Grasim among large-caps, and Shree Cement among mid-caps.


1QFY13 numbers decipher more positives, no negatives
The cement majors have reported strong numbers for 1QFY13 (EBITDA 9-18% ahead of estimates), amidst a mixed bag of expectations – improvement in operations coupled with regulatory concerns post the adverse verdict by the Competition Commission of India (CCI). The robust performance is attributable to (1) strong QoQ improvement in realizations (6-8%), and (2) in-line volumes and cost push (which has been showing signs of stabilization). Given our positive outlook, we have upgraded our earnings estimates (4-11% for ACC, Ambuja and UltraTech), backed by 10-12% upward revision in realization assumptions.

To read report in detail: CEMENT SECTOR