Cement: Prices down MoM; but up QoQ

3 Jan 2024 , 12:37 PM

• All India average cement price fell by 2.2% MoM or by Rs8 per 50-kg bag in Dec-2023, on softer demand across regions. Significant price correction had happened in the first fortnight of the December, while prices remained stable in the second half.
• Regionally, prices fell across all regions in December with highest decline seen in East (-4.5%), followed by South (-3.8%); while prices in other region fell by 0.5-1.2%.
• Though cement prices have been falling in last 2 months, the Q3FY24 average price is up 4.1% or by Rs14 per 50kg bag. The sequential increase is result of sharp prices increases taken in Sept-Oct’23 (3.7% each). Regionally, price increases during Q3 is highest in South at 9.5% QoQ (Rs30/bag) followed by East, North and West at 3.5% each (or Rs12/bag); while price increases in Central India is relatively subdued at 1.6% QoQ (Rs5/bag).
• Heading into Q4, no price hikes have been announced by cement companies till now. Dealers feedback suggest any meaningful price action, if any, will be attempted mid-Jan onwards (post Makar Sankranti festivity). Given that all-India Dec-exit average price is 2% lower than Q3 average price, analysts of IIFL Capital Services expect price increases to come through as demand further picks-up.
• On demand front, channel checks indicated MoM improvement in Dec’23; supported by lower base in Nov’23. However, volume pickup across regions has been softer than industry expectations. Ultratech Cement, the market leader, reported 5% YoY and 2% QoQ volume growth in Q3FY24. Sharp decline in demand in November due to festival holidays has been one of the reason for subdued Q3 demand. However, dealers are optimistic on demand recovery as new construction activity picks-up from mid-Jan onwards.
• Although volume growth may be subdued in Q3 vs. the expectation at the start of the quarter; but prospects of a sharp recovery in Q4 should pose little downside to full year volume expectations. Also price increase in Q3 should lead to Rs150-200/t improvement in Ebitda sequentially. Analysts of IIFL Capital Services continue to maintain their positive stance on the sector on the back of improving profitability and expectation of better than historical volume growth over the next 2-3 years given robust demand. Analysts of IIFL Capital Services maintain BUY on UltraTech, DBL and JK Lakshmi.