Sunny Agrawal predicts strong FY26 for cement sector as profitability improves

"It is a kind of bottom-up stock pickers market. So, the companies which are likely to perform well over the period of next three to four quarters are likely to be on radar of investor," says Sunny Agrawal, SBI Cap Securities.

It has been a decent recovery in April. What do you think this month has in store for us?
Sunny Agrawal: Definitely decent recovery in the month of April. Again, what we have witnessed is that the companies which are reporting healthy set of number, at least meeting the street estimate and guiding for a decent growth as far as earnings are concerned, those companies are holding up and, in fact, few largecap companies are also trading close to the life high.

So, again, market I feel has become a very narrow and stock specific market. So, companies which are likely to report healthy set of number those companies are being rewarded and companies where there is a miss as far as the earnings estimates are concerned or there is a kind of downgrade in terms of a growth outlook, there we are seeing street is punishing those companies.

It is a kind of bottom-up stock pickers market. So, the companies which are likely to perform well over the period of next three to four quarters are likely to be on radar of investor.

A case in point Mahindra & Mahindra, yesterday reported a very stellar set of number. So, both SUV as well as tractor segment performing well.

So, there, we have seen a kind of strong up move today and we believe the fair value of the business is close to Rs 3500-3600, so that will continue.

Among the PSU bank basket, on one hand we have seen a very good set of number from Indian Bank, so there again, we feel there is a value that lies there trading at 0.9 times one year forward price to book. So, we feel the fair value of Indian Bank is close to Rs 650.

On the other hand, today as we are speaking Bank of Baroda has reported a slightly weaker set of number, so spillages have increase and estimates we have seen a miss, need to see whether it is a one-off or whether there is some problem in certain part of the portfolio.

So, Street is punishing the Bank of Baroda. So, again going forward I feel ultimately market will gravitate towards the companies which are likely to report healthy growth.

How is it that you have mapped the earning season so far and let me keep it out of this because that, of course, was a clear eyesore. But you did flag off BOB for instance right now. Where is it that you have seen positive surprises and where do you think the disappointments still await us?
Sunny Agrawal: Again, what I feel is that the results season so far have been mixed bag. So, there is no one structural trend we are seeing across the sector, like even within IT pack which is a clear sector which is not liked by the street at the current juncture.

So, yesterday, Coforge reported a very good set of number over there backed by the very robust deal win, $2.1 billion kind of deal win which usually a large peers like Infosys and TCS report, that is at least giving a confidence that the company can continue to report a 15% kind of growth in FY26.

If you look at banking sector, a clearcut outperformance by ICICI Bank, HDFC Bank. On the other hand, we have seen a slight disappointment from likes of Kotak or for that matter Bank of Baroda today reported a weaker set of number. So, again, across the sector we are seeing a kind of mixed bag number.

So, it is more of stock specific or bottom-up market so far. Coming to the sectors which were not doing well, so cement at least we have seen a sequential improvement in terms of profitability.

So, all the cement players are reporting a decent Q-on-Q improvement in ebitda per tonne metric, so on that base we feel that going forward that is in FY26 the industry can report a 6% to 8% kind of volume growth and backed by the recent price hike taken by all the cement majors we feel the profitability can further inch up over the period of next three to four quarters.

So, cement, the trend has been similar across all the companies, most of the companies have reported sequential improvement in profitability and that is likely to continue in FY26. So, yes, coming to auto, again, it has been a mixed bag.

So, on two-wheeler side, we have seen a very strong number from likes of TVS Motor. Among the passenger vehicle side Mahindra & Mahindra has reported good set of number whereas there was a disappointment from Maruti’s side. So, kind of mixed bag across all these sectors.