OPEN APP
Home >Markets >Mark To Market >Cement spreads highest since June 2020, courtesy price hikes: Motilal Oswal

Impacted by rising input costs, cement manufacturers have taken yet another price hike in April, shows the latest dealers channel check by Motilal Oswal Financial Services Ltd. According to the brokerage house, prices have been raised by around 3% on a month-on-month basis in April and now stand at an average of 371/bag at an all-India level. One cement bag weighs 50 kilograms.

With that, cement spreads have increased to their highest level since June last year. A spread is the difference between cement prices and energy costs on a per tonne basis for cement companies. Prices of key input materials required to manufacture cement such as petroleum coke, coal and diesel have sharply risen on a year-on-year (y-o-y) basis. Analysts say the recent hikes should allay investors' concerns on the impact of rising commodity inflation on margins, to a certain extent. It should be noted that cement companies saw stellar margin growth in the December quarter aided by cost rationalisation measures and stock of inventory procured at a lower price.

Also Read | Ripple effects of the warehousing boom

"With the April 2021 price hikes, we estimate that the industry has fully passed on the cost inflation to customers. We estimate Cement spreads (price-to-power and fuel cost, and price-to-freight cost) for trade sales to be the highest since June 2020 at Rs3,591/tonne (flat y-o-y)," it said in a report on 11 April.

However, these price hikes would take some time to reflect in the earnings of cement companies. In the March quarter earnings, margins of some cement manufacturers could see some compression due to elevated input costs.

Meanwhile, cement demand is likely to remain robust in the March quarter aided by the ongoing recovery in urban real estate and infrastructure activities. Channel checks show that demand has been strong across regions, except for South India. "As per our channel checks, volumes in March 21 have been at record levels across all regions (except South India). We expect volumes to grow by 22% y-o-y/10% q-o-q for our coverage universe in 4QFY21E," added the report.

Subscribe to Mint Newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.

Never miss a story! Stay connected and informed with Mint. Download our App Now!!

Close
×
Edit Profile
My ReadsRedeem a Gift CardLogout