Cement prices up in September; further hikes announced in October: IIFL Capital Services

5 Oct 2023 , 11:27 AM

• All India average cement price is up 3.7% MoM, or by Rs13 per 50- kg bag in Sept-2023. Analysts of IIFL Capital Services note that the sharp price hikes taken in the first fortnight of Sept are partly reversed in the H2. Sharp price uptick is seen in the eastern market during the month (+18% MoM).
• For Q2FY24, all-India average cement price is up 1.2% QoQ, or Rs4 per 50-kg bag. Within regions, prices in the North and East markets are up ~3.5% QoQ each, or by Rs12/bag; followed by central India where prices are up 1.8% QoQ or by Rs6/bag. Prices in the southern markets have declined by 2.2% QoQ or by Rs7/bag – sharp decline in Tamil Nadu and Karnataka markets have weighed on the region pricing. Prices in the West are marginally down (0.5% QoQ).
• Usually, cement price declines in Q2 (down 4-7% QoQ in the last four years) due to seasonality (monsoons) – but this year, prices are flat, since the increase in Q1 was muted (historically, prices have increased between 7-10% QoQ in Q1).
• In Oct’23, companies have announced 3-7% price hike across regions, barring central India (all-India price hike of Rs15/bag or by 5%). Analysts of IIFL Capital Services believe only part of this hike will sustain, given the competition intensity. With Sept-exit price higher than Q2 average (+1%) and fresh hikes announced in Oct (even if partly sustains) – should address concerns around rising energy cost (petcoke and select international coal prices are up 15-25% since July 2023).
• Dealer commentary suggests strong demand across the region, except for southern India. UltraTech Cement reported 15% YoY growth in Q2FY23 –in line with expectation. Overall, analysts of IIFL Capital Services expect industry profitability to be flattish QoQ as benefits of falling fuel cost and marginal price hike to be offset by lower fixed cost absorption (volumes to decline QoQ).
• With continuing strong demand momentum coupled with early signs of pricing discipline by players (as seen in East) augurs well for sector’s earnings growth. Analysts of IIFL Capital Services maintain their positive stance on the sector with a BUY on UltraTeceh Cement, JK Cement, JK Lakshmi and Dalmia Bharat.