Cement price declines in March; hikes likely in April: IIFL Capital Services

6 Apr 2023 , 11:43 AM

• All-India average cement price fell by Rs8/bag or 2.2% MoM in March 23 as companies offered discounts to push higher volumes. Cement prices declined across regions with the highest decline seen in Eastern markets (-3.7%), while the lowest in Central region (-1.1%).
• In Q4FY23, average cement price is down 1.3% QoQ – weaker than Analysts of IIFL Capital Services expectations. In the last five years, prices in 4Q had seen an uptick, ranging from 0.5-3%. However, this year’s decline is on the back of Q3 price hikes (+4% QoQ) vs the usual weak trend (Ambuja ACC year-end discounts). Regionally, Q4 prices in South and East markets have witnessed sharp decline (3-7%), while remaining steady in the North and West. Average cement prices in Central market is up 2.4% QoQ – the region is seeing a catch-up as price trend in Q3 was weak. As such, the all India average cement price in FY23 is up 3.7% YoY – the fourth consecutive year of price increase (ranging from 3-5% YoY).
• Further, dealers across regions shared that companies have indicated to increase prices from April-beginning. Prices are likely to go up by Rs10-20/bag (as high as Rs30/bag in select Southern states); however, sustainability of such hikes would be known only by mid-April, given the current high level of inventories in distribution channel.
• Q4 demand outlook remains strong with minor aberration due to Holi festivities and unseasonal rains in North. UltraTech, the largest Cement player in India, reported 15% YoY volume growth in Q4FY23 vs Analysts of IIFL Capital Services expectation of 8-9%. Robust housing and large infrastructure project, aided by increased government spending is driving cement demand.
• In spite of weak realisations QoQ, profitability is expected to improve sequentially in Q4, owing to operating leverage benefits driven by higher volumes. Softening energy prices would further support Ebitda/t improvement in H1FY24. Given the robust outlook on volumes as well as on profitability, near-term earnings visibility of cement companies is high. Pricing indiscipline among players to garner higher market share remains a key risk. Analysts of IIFL Capital Services preferred picks in the sector are UltraTech Cement, Dalmia Bharat, JK Cement and JK Lakshmi.

 

North – Prices decline across regions in March; average price up 0.7% QoQ:

Average cement price in the region is down 1.3% MoM in Mar-23, as prices declined across region ranging from 1-2% during the month. While March-23 exit price is down 2% vs. Dec-22 exit; the Q4 average price is up 0.7% QoQ. Per channel check feedback, demand in Mar-23 improved MoM; in spite of incessant unseasonal rains across region slowing down pace of construction activity towards month-end; owing to dealers booking to meet annual incentives. Further, expectation of price increase to the tune of Rs10-15/bag from April onwards, also led to demand from dealers.

Mar-exit price range per 50-kg bag was Rs330-365 in New Delhi, Rs265- 350 in Jaipur, and Rs350-370 in Ludhiana.

 

Central region– Price catch-up playing out, sees highest increase in Q4 across regions: 

Average cement price in March is down by Rs4/bag or 1.1% MoM in Central India, as price hikes in Bhopal market have been offset by fall in Indore and Lucknow markets. Robust demand in Q4 (aided by increased government spending) has resulted in improved DD-SS balance and stable pricing environment in the region. Also, price increase taken in Jan-Feb have sustained through the quarter. Average Q4 price is up 2.4% QoQ — highest across regions, partly due to subdued prices seen in QFY23. 

Mar-exit price range per 50-kg bag was Rs300-385 in Lucknow, Rs285- 360 in Bhopal, and Rs275-345 in Indore.