3 cement stocks that could be good buys

We are confident that the sector will do well in the coming quarters, says Abhimanyu Sofat, VP-Research, IIFL.

On cement stocks
Among largecap cement stocks, ACC looks good for next three years as they are going to add significant capacity after a long time. The coal prices have come down and that also benefits them in terms of raw materials. Raw material costs had gone up slightly over the last couple of weeks but overall, with new orders, the sector looks to be quite decent. The leverage in the sector is quite low relative to what it was earlier. Structurally the debt has come down by 50% in the last one-and-a-half years. The sector has a good pricing power and for that particular reason, ACC looks like a good buy to us.

Dalmia Cement also looks like a good buy to us. In the small cap space, HeidelbergCement is more of a retail play. These are some of the interesting stocks from the sector. Overall view on the sector is quite good because the volume growth is going to be pretty robust in the second half. We are confident that the sector will do well in the coming quarters.


On Bajaj Finance
The valuations are quite high as the stock is trading at close to eight times. At this particular point of time, it would make sense to book at least half of your profit in the stock. The company has good pedigree but at the end of the day, valuations matter. Some NPAs can be expected in the coming couple of quarters. So, this may not be the right time to buy the stock. However, there are lots of opportunities in midcaps and even in the BFSI and micro finance spaces where valuations are not that high. Also, risk reward is better there.

On telecom competition & ARPU subscriber addition
The quality of customers that Bharti is able to get is better. The last updated numbers from TRAI show Vodafone lost close to 40 lakh customers. Jio was able to gain probably 15 lakh customers. The inactive customer base of Jio is significantly higher than that of Bharti. In terms of ARPU, there seems to be some room for Bharti to grow from the current Rs 162 level. In terms of valuations also, things are quite decent.

Going forward in terms of the charges that one needs to pay for spectrum, the cash outflow for Bharti is going to be substantially lesser than what it is for Jio. From that angle, the stock risk reward looks quite decent to us and considering that the telecom market looks quite mature and once the new TRAI chief puts a cap on predatory pricing, the sector over the next 18 months is due for a significant up move. It is going to see a structural increase in ARPU going forward.