Cement dealer price check: Correction, despite demand improving MoM: IIFL Capital Services

11 Jul 2022 , 12:15 PM

All-India average cement price is down by ~Rs15 per 50-kg bag or 3.8% MoM in June 2022. The price increases taken by companies at quarter-beginning, to pass-on the cost inflation, have given way from mid-May, clearly highlighting the pricing indiscipline among players.

Although prices have declined across regions, the quantum varies significantly, based on demand trend and competitive intensity. The highest decline is seen in the North, East and Central markets, while a moderate decline was seen in the South and West.

For Q1FY23, all-India average cement price is up by Rs25/bag or 7% QoQ — the highest increase is seen in the central (+12.3% QoQ) and northern (+10.4% QoQ) market; a moderate increase was seen in the East (+7% QoQ) and West (+5.7% QoQ). Prices remained flat in the South due to subdued demand and increasing competition, despite efforts of market leaders to push them up.

Based on dealer commentary, demand has seen MoM improvement in June, after staying weak in May (which led to price correction from mid-May). Delayed monsoons and lower steel & cement prices supported the demand growth; however, dealers now expect demand to moderate with the pick-up in monsoons. Liquidity constraints and higher sand prices could also impact demand, as highlighted by a few dealers.

Cost pressure sustains — Prices of petcoke and imported coal are up 40-55% QoQ, while price of diesel is up 7% QoQ in Q1FY23. Despite the persistent cost pressures, cement prices have corrected in the last 1&1/2 month — this would impact the profitability of cement companies. With prices now falling and cost pressures largely sustaining (although domestic petcoke prices are down 10% MoM in July), the impact on profitability would be much more in Q2FY23.

However, stock price corrections in recent times partly price-in these concerns; analysts at IIFL Capital Services believe any further correction in the near term owing to a lean season (monsoon period: Jun-Sep) would provide an opportunity to BUY.

Their picks in the sector are: UltraTech Cement, ACC, Dalmia Bharat, JK Cement and JK Lakshmi.

Cement price summary

Average price per 50-kg bag (Rs)	South	East	North	West	Central	All-India
Q1FY22	379	316	332	352	309	338
Q4FY22	350	303	335	352	313	331
Q1FY23	351	324	370	372	351	354
QoQ change (%)	0.1	7.0	10.4	5.7	12.3	7.0
YoY change (%)	(7.4)	2.7	11.5	5.6	13.6	4.8

Source: Industry, IIFL Research