Prefer ACC in large cap cement space and Ramco in midcap: Ajay Bodke

In a chat with ET Now, Ajay Bodke, Head-Investment Strategist & Advisory, Prabhudas Lilladher, shares his views on the cement space.

ET Now: From large caps essentially, what would be your view on some of the cement names at this point?

Ajay Bodke: Yes, the monsoon is typically the time when we see the construction activity coming to kind of standstill in large parts of India. Hence the pricing power to that extent gets diluted in this period. But let us not forget that prior to the start of monsoons all across the country, we had seen prices going up between say around Rs 10 to as high as around RS 60-70 in certain markets per bag especially southern markets. So in case of cement, as the economic momentum starts picking up gets consolidated, pricing power sort of is back with the sector, utilisation levels are low and hence they would not have essentially lot of capex is behind them.

So it is a great play on the operating leverage that will come into play. As your volume start going up, your capacity utilisation start moving up with no further capex being necessary for the next couple of years. Some of the leading players will be a prime beneficiaries of the upturn in the economy and our analyst prefers ACC in the large cap space with the target price of 1562 in the medium term. He is expecting an earnings growth of 32 per cent in the current financial year followed by 34.5 per cent in next financial in the ACC and with an ROE of around 18.2 per cent expected in the current financial year.

The stock today is trading at around 16.7 times. In the midcap space, our preference is with the Ramco Cement and I have spoken about it for last few months. We continue to still like the stock but only on dips and there the play essentially as I have been maintaining is the growth in both Telangana and the Andhra which has been lacklustre for last two-three years because of Telangana agitation. New states being formed, new capital being constructed in Andhra part of the erstwhile Andhra Pradesh state and overall southern sort of markets being lacklustre over last few years. So Ramco Cements is what we like in the midcap space.