Cement sector: Prices cool off in Nov; Q3 prices still +5% QoQ

6 Dec 2023 , 10:51 AM

• All India average cement price fell by 1.3% MoM, or by Rs5 per 50-kg bag in Nov’23 as demand moderated across regions. No price change announcement is made for December, except for 3% hike (Rs10-15/bag) announced in the western market.
• Note that prices had increased by 3.5-4% MoM in the last two months (Sept-Oct); resultantly, quarterly average price is still higher on QoQ basis. Analysts of IIFL Capital Services note that all-India average cement price in Q3TD is up 5.1% QoQ or by Rs17/bag.
• For November – divergent price trends are seen regionally – sharp cuts in the East (-4.6%), followed by North (-2.6%) and West (-1%); while prices in Central and South saw marginal increase (+1% each).
• However, on a quarterly basis, prices are up across markets on QoQ basis, price increase ranging from 2-10%. The highest increase is seen in South (11% QoQ), followed by East (6% QoQ) markets. North and West saw price increase ranging from 3.5-4% each; while price increase in central India is relatively subdued at 2% QoQ.
• Based on the quarterly price movement – analysts of IIFL Capital Services expect profitability of companies with higher South and East exposure, such as Ramco, Dalmia Bharat, India Cements, Sagar Cement, etc., to improve.
• On the demand front, channel checks indicate a slowdown in volumes in Nov’23. Construction activity was impacted, owing to labour shortage during the festive season, coupled with state elections (five states). Further, local factors such as construction ban in NCR and monsoons in Tamil Nadu also impacted volumes. However, dealers expect volumes to pick up as analysts of IIFL Capital Services enter the peak construction period.
• Sequential price improvement and steady energy costs would drive H2 profitability. Further, increasing visibility on political stability will ensure continuation of development-led government policies; thereby ensuring healthy demand growth over the next two to three years. Analysts of IIFL Capital Services maintain their positive stance on the sector and reiterate BUY on UltraTech Cement, JK Cement, Dalmia Bharat and JK Lakshmi.