13 Sep 2022 , 10:59 AM
IIFL Capital Services’ dealer checks provided the following insights:
· All-India average cement price is down by Rs6 per 50-kg bag, or 1.9% MoM in August 2022. This is after prices declined by 2.5% MoM in July 2022. Consequently, Q2 FY23 (QTD) prices are down by Rs23/bag, or by 6.4% QoQ (so far). Historically, average price has fallen by 4-7% QoQ in Q2; however, given the cost pressures this time — the price decrease reflects increasing competitive intensity.
· Prices have abated across regions, except for South, ranging from 1-5%. Higher reduction in prices was seen in East regions (4.5%), followed by West and North (around 2%) and Central (1%). Prices in South India were flat MoM.
· Dealers shared that prices in the East and South have risen by 4% and 5%, respectively, in the first week of September. However, the same is unlikely to sustain as overall demand is not as strong.
· Further, based on dealers’ commentary, demand in North and West has been relatively weaker compared to other regions. Progression of South-West monsoons, festival holidays and sand shortages in select states (Punjab and West Bengal). Going ahead, dealers expect volumes to improve – from September-end/October onwards — as monsoon recedes. Demand improvement may also allow companies to raise prices from Q3 onwards.
· Although domestic petcoke prices are down 30% from June-end, the benefit of this would largely flow in Q3; as usually, companies carry fuel inventory ranging from 30-60 days. Thus, EBITDA per tonne is likely to see a meaningful decline in Q2 (current estimates of Rs200/t or ~20% of industry EBITDA/t) given lower prices and negative operating leverage (volumes are likely to decline QoQ).
However, with fuel prices correcting and cement volumes and prices likely to improve from Q3 onwards; Q2 is likely to be a bottoming quarter with industry profitability improving in H2.
Cement price summary
Average price per 50-kg bag (Rs) | South | East | North | West | Central | All-India |
Q2 FY22 | 365 | 294 | 330 | 348 | 305 | 328 |
Q1 FY23 | 351 | 324 | 370 | 372 | 351 | 354 |
Q2 FY22 (QTD) | 337 | 301 | 338 | 357 | 323 | 331 |
QoQ change (%) | (3.9) | (7.0) | (8.6) | (4.2) | (8.2) | (6.4) |
YoY change (%) | (7.8) | 2.5 | 2.5 | 2.4 | 5.8 | 0.8 |
Source: Industry, IIFL Research
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