Home / Markets / Mark To Market /  Cement prices in check in August due to monsoon
Listen to this article

The second quarter (July-September) of a fiscal year is typically weak for the domestic cement industry as construction activities slowdown due to monsoon rains, thus exerting pressure on prices. Dealers channel check by Kotak Institutional Equities showed that cement price continued to fall in August. India's monsoon season runs from June to September.

"North/Central markets witnessed a 2-3% month-on-month (m-o-m) decline in prices in August 2022 whereas prices in West/East India remained stable m-o-m despite weak demand," the domestic brokerage house said in a report on 18 August. On the other hand, southern India saw a 3% m-o-m increase in prices in August, but given the seasonal headwind at play, higher prices are unlikely to sustain.

The report pointed out that historically, cement prices have declined about a percent sequentially in the second quarter, while 2QFY23E has so far seen a 3% quarter-on-quarter fall in prices. Prices at an all-India level stood at 384 per 50 kilogram bag in August.

Cost of key inputs petroleum coke and coal are likely to remain elevated in the September quarter. Since Q2 is seasonally weak, cement makers will not be able to pass on the cost burden, and as a result margin compression is likely to continue. In Q1FY23, cement makers performed poorly on the operating front hurt by high input costs. That said, management commentaries point to input cost inflation easing in the second half of the fiscal year. Similarly, cement demand is also likely to improve Q3 onward.

Meanwhile, analysts at Sharekhan by BNP Paribas point out that most cement companies have seen their stock prices rise 10-20% in the past month. Even so, their current EV/Ebitda valuation multiples remain marginally lower than the five-year average. EV is short for enterprise value. Ebitda stands for earnings before interest, tax, depreciation and amortization. 

"We expect healthy demand outlook for the cement sector going ahead along with declining coal/pet coke prices being a key tailwind for improving operational profitability," it said in a report on 18 August.

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Subscribe to Mint Newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.
Post your comment

Recommended For You

Trending Stocks

Get alerts on WhatsApp
Set Preferences My ReadsWatchlistFeedbackRedeem a Gift CardLogout