Cement sector: October hike sustains; further price increase announced
7 Nov 2022 , 11:43 AM
Here are the key findings:
All-India average cement price is up by Rs12 per 50-kg bag, or 3.6%, month-on-month in October 2022. The price increase is on expected lines post withdrawal of monsoon. The highest increase was seen in South India where average price is up 8.2%, followed by East (up 7.3%) and West (up 2.5%). Prices in North and Central India remained flat month-on-month.
Regionally, price trend continues to remain similar to September 2022; with South and East markets seeing highest increase; while North and Central were the weakest. Incrementally, this is likely to benefit regional players like Dalmia, Ramco, Nuvoco who have higher exposure to the East and South markets. Prices in all but North and Central markets have recovered to their pre-monsoon levels.
In November 2022, companies have either already increased prices (in some cases, withdrew month-end discounts), or indicated to increase prices. All-India average price is expected to increase by Rs5-10/bag, or by 3%, in November. Within regions, highest increase is seen in West (up 4%) followed by South-East (3-4%) and Central-North (1-2%). Dealers expects prices to further increase as construction activity picks up.
After sharp demand recovery in September 2022; demand was subdued in October 2022. Multiple festivals in October (Dussehra + Diwali) and extended monsoon impacted volumes. Notably, despite subdued demand, companies have managed to hold on to price hikes indicating price discipline among players. Dealers expect pickup in volume, going ahead, as the festival period is behind. Although some impact is likely of the harvesting season the East. Sand unavailability is also a challenge in certain markets (Punjab, Bihar, etc.).
In Q2FY23 earnings’ calls, companies shared that their profitability (Ebitda/t) is likely to bottom out in Q2, and is expected to improve from Q3 onwards, driven by
Better volumes
Price hikes
Peeking out of costs
IIFL Capital Services’ top picks in the sector are – UltraTech Cement, ACC, JK Cement, Dalmia Bharat, and JK Lakshmi.
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