In recent months, the cost of key input materials petroleum coke, coal and freight have sharply increased, pointing to pressure on margins
Cement manufacturers were in focus in early trade on Tuesday with their shares gaining 4-6% on the National Stock Exchange. Stocks of companies with pan-India operations such as Ambuja Cement Ltd, Ultratech Cement Ltd, Shree Cement Ltd, and ACC Ltd rose around 3-5%. Shares of regional companies such as south India-based Ramco Cements Ltd were also trading in the green.
Recent cement dealers channel checks show that despite June being a seasonally weak quarter, cement prices across most regions in India were firm.
Average cement prices on a pan-India basis rose around 6% sequentially during Q1FY22. According to analysts at ICICI Securities Ltd, this was led by 11% quarter-on-quarter (q-o-q) rise in the east and 6-7% q-o-q increase in the south and west. Prices in north and central India are up 3-4% q-o-q. On a year-on-year basis, average pan-India prices likely rose around 2.5% led by 4-5% increase in east and west India.
Since the sector is battling with input cost pressures, an uptrend in cement prices bodes well for the profitability of the sector. In recent months, the cost of key input materials petroleum coke, coal and freight have sharply increased, pointing to pressure on margins. Average domestic pet coke prices are up 11% q-o-q and 85% y-o-y, while imported coal prices are up 16% q-o-q and 60% y-o-y.
Analysts at JP Morgan are of the view that price rise could offset large cost increases. However, the foreign research house does not expect large margin expansion.
As far as demand is concerned, dealers' channel checks show that industry volumes likely increased in high-teens on a month-on-month basis in June. On a year-on-year basis, the improvement was in high single-digits, thanks to pent-up demand and easing of lockdown restrictions. "On an m-o-m basis, volumes likely grew >20% in the North region, in high-teens in the East and South regions and in low double digits in the West and Central regions," said a report by Emkay Global Financial Services Ltd.