Deutsche Bank on Wednesday said that cement stocks are in for a potential re-rating. The investment bank cited the pickup in merger and acquisitions (M&A) in the sector as the reason for the possible re-rating.
The bank said that any enterprise value greater than $150 per tonne for the CRH and the Jaiprakash Associates transaction could trigger a re-rating for a number of midcap stocks.
Irish building materials group CRH Place said it was in talks to pick up an equity stake in Jaiprakash Associates’ cement operations in Gujarat.
“Historically, large-ticket M&A transactions, in particular Ambuja buying a stake in ACC in 1999, Grasim buying a stake in L&T’s cement business (now UltraTech) in 2004, and Holcim buying stakes in ACC and Ambuja in 2005 and 2006, have led to improvements in profitability and valuations in the sector,” the bank added.
The bank reiterated Ambuja Cements and Shree Cement as its preferred picks in the sector.