Cement: Prices slide further in January 2024; down 4% versus Q3 average

5 Feb 2024 , 10:34 AM

• All India average cement price fell for third consecutive month – down 2.3% Month-on-Month (MoM) or by ₹8 per 50-kg bag in January 2024. Prices declined sharply in the 1^st half of the month; but were broadly maintained in the second half as demand improved.
• Prices fell across all regions with highest decline seen in Southern region (~4.5% MoM), followed by East and Central (2.5-3%); and least decline in West and North India (down ~1% MoM).
• In Q4 so far, noted analysts at IIFL Capital Services, all-India average price is 4% lower than Q3 average prices. Regionally, highest decline is seen in South and East markets – down ~7% sequentially; whereas prices in other regions are down 2-3% sequentially.
• Heading into February 2024, cement companies are yet to announce meaningful price hikes. Analysts at IIFL Capital Services believe prices could remain flat sequentially – companies would require to take hikes to the extent of 6% from February onwards. If companies are unable to increase prices in coming weeks, it would risk Q4 profitability despite lower fuel costs and increasing operating leverage. This is a key monitorable in coming weeks.
• Channel checks indicate demand in January 2024 improved MoM. However, volume pickup has been softer than expectations. In Q3, industry demand was subdued (up 3-4% YoY) – dealers consider weakness to be temporary and expects recovery in volumes from hereon. Cement companies are targeting positive YoY growth in Q4 despite strong base and upcoming elections (April/May 2024). Generally, demand in a run-up to the elections and immediately after could see softness given slowdown in government approvals and payments.
• Although volume growth was subdued in Q3 versus expectation; the prospects of a strong recovery in Q4 should pose little downside to full year volume expectations. While realizations remain weak, analysts at IIFL Capital Services expect falling costs and favorable operating leverage to support profitability in Q4. 

Analysts at IIFL Capital Services have maintained 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. They remain positive on UltraTech, Dalmia Bharat and JK Lakshmi.