Cement prices flat MoM in December; up 4% QoQ in Q3: IIFL Securities

5 Jan 2023 , 03:48 PM

Key takeaways:

• All-India average cement price was flat MoM in December 2022. Regionally, North (+2.8%) and West (+1.7%) regions saw price hikes, whereas prices in South declined -3.4%, followed by ~1% fall in the East and Central markets.

 

• In Q3, generally cement prices remain under pressure (historically prices have ranged from -4% to +1% QoQ in last seven years). But this year, the average price is up 4% QoQ, or by Rs13 per 50kg-bag. Higher cost pressures and change at year-end by ACC-Ambuja (from December to March), have supported prices this year.

 

• Regionally, Eastern markets have seen sharp increase in prices – up 10.6% QoQ, or by Rs32 per 50kg-bag. This was followed by South and Western markets, where prices increased 4-5% QoQ. North (+2% QoQ) and Central (-0.7% QoQ) markets saw the least price increase, given weak demand. Based on 3Q trends, players with higher East exposure such as Dalmia Bharat, Nuvoco Vista, JK Lakshmi and Ramco Cements — should benefit.

 

• Dealers have also shared that companies are trying to raise prices in January 2023. Based on initial indications, all-India average price could go up by 1.6%, or by Rs6 per 50kg-bag. Price increase are talked about in the South, East and West markets (up 2-3%).

 

• Although the quarter started on a subdued note with demand impacted due to festive period, labor migration, elections in select states, it improved as the quarter progressed. The YoY growth will also be aided by a weak base (volumes were down 3% YoY last year). Resultantly, based on initial expectations, volumes are likely to grow at 8-10% YoY in the quarter.

 

• In Q3FY23 – industry profitability is likely to improve on sequential basis, as two of the three factors are supporting – prices are up QoQ and higher volumes would lead to operating leverage benefits. While costs continue to remain stubborn, analysts at IIFL Securities expect this to moderate going ahead. Based on initial estimates – EBITDA per ton could improve by Rs250-300/t to Rs850-900/t in Q3. Analysts at IIFL Securities remain positive on the sector, as peak construction period would support higher volumes and prices in next two quarters. The only unknown factor remains Energy prices. 

 

• IIFL Securities’ preferred picks in the sector are UltraTech Cement, Dalmia Bharat, JK Cement, ACC, and JK Lakshmi.