Are cement shares a good buy at current levels?

Are cement shares a good buy at current levels?

With economic growth expected to rebound, cement has been one sector that some analysts say offers plenty of investment opportunities.

In an interview with CNBC-TV18, Harsha Upadhya of Kotak MF said that from a three-five year cycle perspective, the sector looks good. "We are just seeing demand recovery. The GDP is moving up and the demand for cement can also move up significantly from here," he told CNBC-TV18.

He added that compared to the previous cement boom cycle [between 2004-2008], one thing has changed in favour of the companies "If you look at the industry over the last ten years, the industry has got consolidated in favour of larger players. Larger players today account for are nearly half of the overall capacity in the industry which means that the pricing power is going to be much more substantial in this cycle compared to the previous cycle," he said. "It is also a clean sector, there is no financial stress in the sector and if you want to play the infrastructure recovery in the country, this is one of the cleanest ways to play that."

There is still one problem. The expectation that the cement sector is on the cusp of a turnaround has been prevailing for about two years now -- right since the NDA government came in.

Consequently, this has shown up in the price. "Valuations are stretched because people have been expecting a bull run in cement sector for a pretty long time. I don't think that is coming," Rakesh Arora of Macquare said.

Happy Investing

Source:Moneycontrol.com