Cement prices decline in Aug; sharp hikes announced for Sept

6 Sep 2023 , 12:13 PM

• All-India average cement price fell by 1.4% or Rs5/bag in Aug’23. Price hikes undertaken in July’23 didn’t hold steady and have been reversed during Aug. Hence, Aug exit prices trading flat vs Q1 exit prices.
• Regionally, prices are flat to negative in Aug’23 – the highest decline is seen in the East (~4%), followed by Central (~2%), the West and North (~1% each); prices are flat in the South.
• Compared to the Q1 average – all-India average prices are flat QoQ; as price hikes in the North (3.5%) and Central (2.1%) markets are largely negated by softness in the South(-2.2%) and East (-1.7%) markets. In the West, prices remain largely flat. Note that prices in Q2 usually decline QoQ due to seasonal weakness.
• Per channel checks feedback, companies have indicated sharp price hikes in Sept’23 – Rs35/bag implemented in the East; while Rs5- 15/bag intimated across other regions, barring South. Contrary to the other regions, no price hikes have been announced in southern markets so far.
• Dealer’s commentary on demand remains moderate; however, the below-average monsoon in Aug could aid cement volumes. The Q2 being seasonally weak (lower volumes) generally weighs on cement prices and therefore, on profitability. However, accrual of lower energy costs and steady realisations QoQ are likely to aid profitability in Q2. Going ahead, sustainability of price hikes in Sept’23 will be key for industry profitability.
• The current valuations seem to be pricing in the near-term earnings especially given that cost has seen some escalation in last month. However, September price hikes if sustain should more than offset the recent cost increase. Analysts of IIFL Capital Services maintain their positive bias on the sector from a medium-to-long term perspective considering the strong demand momentum. Analysts of IIFL Capital Services picks in the sector are UltraTech Cement, Dalmia Bharat, JK Cement and JK Lakshmi.