Cement price hikes not supported; Q4 prices flat QoQ

6 Mar 2023 , 10:13 AM

Here are the key takeaways:

• All-India average cement price was flat MoM in February 2023, despite price-increase attempt by companies during mid-February 2023. Regionally, except for the Central region (+2.6% MoM), prices were largely flattish elsewhere.

 

• Compared to Q3 average prices – highest decline is seen in southern markets (down 5.6% QoQ) followed by Eastern markets (down 2.1% QoQ). Analysts at IIFL Capital Services note that these two regions also saw the highest in Q3, based on our dealer checks; and to that extent there is some price normalization. Price increase in other regions varies from 1-2% QoQ.

 

• Per channel checks, commentary on pricing remains underwhelming for March 2023, as dealers expect temporary weakness due to Holi festivity (especially in North and Central India) and focus on pushing volumes in second half of March, to meet year-end targets. Dealers suggest prices to increase from April 2023 onwards.

 

• On demand, although dealers’ commentary was mixed, the overall bias was positive (analysts at IIFL Capital Services note that monthly cement production run-rate in January 2023 is up 5% YoY and 10% versus Q3FY23). In fact, dealers are optimistic on the near-term demand outlook and are confident to achieve their annual targets in March 2023. Robust housing and large infrastructure project — aided by increased government spending — is driving overall volumes in a seasonally strong construction period. 

 

• In periods of such robust demand, analysts at IIFL Capital Services believe that companies are targeting higher volumes rather than price hikes. As such, they believe profitability would be supported by operating leverage benefits and falling fuel prices (pet coke and international coal prices are down 1% and 5% QoQ; – benefits would accrue based on inventory levels).

 

• Despite subdued outlook on price hikes in Q4, analysts at IIFL Capital Services expect sector profits to improve sequentially, driven by higher volumes and better profitability (operating leverage benefits). Also, strong visibility on volume growth, coupled with lower energy prices, are likely to drive FY24 Ebitda. 

 

• Analysts at IIFL Capital Services have maintained their positive stance on the sector; their preferred picks being UltraTech, Dalmia Bharat, JK Cement, and JK Lakshmi.