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After a dull Q2, price hikes in October a cheer for cement stocks

In recent trading sessions, stocks of many mid and smallcap cement makers have rallied on the back of September price hikes and anticipation of consolidation, (File Photo: Mint)Premium
In recent trading sessions, stocks of many mid and smallcap cement makers have rallied on the back of September price hikes and anticipation of consolidation, (File Photo: Mint)

  • Things could start to look up for cement investors from second half of the financial year. Analysts note that demand trends have shown some improvement in September. Secondly, input cost inflation pressures are easing.

The September quarter has been historically weak for the cement sector as construction activities tend to be muted during the monsoon season. In line with past trends, cement prices have remained on a weak footing in Q2FY23 despite a hikes undertaken in September.

A dealers channel check by Jefferies India showed that cement prices rose around 3% on a month-on-month in September. At the end of the month, on an average, the price per 50-kg bag stood at 365 at an all-India level. 

"Cement prices have improved MoM in three out of five regions with monsoon season in the last phase. Price hikes were not taken in the northern region as monsoon was severe in the region," said the Jefferies report dated 1 October. 

While price decline of 5-5.5% quarter-on-quarter for 2QFY23 is higher than the estimate, the exit price for the quarter is 1% above the quarter average, added the report.

Apart from weak cement prices, high input costs of petroleum coke and coal is another crucial factor which is likely to weigh on the operating performance of cement manufacturers in Q2FY23.

But things could start to look up for cement investors from second half of the financial year. Analysts note that demand trends have shown some improvement in September. Secondly, input cost inflation pressures are easing. During the quarter, imported coal prices peaked at $388/tonne on 6 September 2022 before gradually declining and currently stand at $300/tonne, analysts at IDBI Capital Markets and Securities Ltd said in a report on 29 September. Benefits from softening inputs costs are likely to show in earnings post Q2FY23.

Also, cement price hike announcements were made in some markets in October. For instance in the east, cement producers have announced a price increase of Rs15-20 per bag from start of the month, said the Jefferies report. In the west, producers have indicated price increases of 30 per bag in Mumbai and 15 in Ahmedabad. "With further price hike announcements in few of the regions, there is scope for QoQ price growth for 3QFY23," said the Jefferies report.

The aforementioned factors playing simultaneously would give the sector's ailing margins a boost.

Meanwhile, analysts at IDBI expect cement demand to further improve post Diwali. For FY23, the domestic brokerage house expects cement demand to rise by 9% year-on-year.

Investors would remember that in recent trading sessions, stocks of many mid and smallcap cement makers have rallied on the back of September price hikes and anticipation of consolidation, especially after the Adani Group completed acquisition of stake in Ambuja Cements Ltd and ACC Ltd. Sustanence of price hikes is an important factor that would decide the future course of cement stocks.

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