Home / Markets / Mark To Market /  Outlier south sees cement prices go north

Cement prices across most regions in India headed lower in August as the monsoon continued to pick up pace. However, south India was an exception. The latest dealers’ channel check by Kotak Institutional Equities showed cement prices in south India have risen by 13 per bag in August from July and are now at 404. One cement bag weighs 50 kg.

The September quarter is seasonally weak for the cement sector as construction activities, especially in the individual home building segment, tend to remain muted because of rain. Most dealers based in the South continue to report poor sales on a month-on-month basis in August compared to July because of lack of credit flow, high cement prices, a heavy monsoon and a slowdown in government infrastructure projects, said a Kotak report dated 18 August. Dealers expect demand to be under pressure given delays in the restart of major government projects, a key demand driver for the cement sector. This aberration in prices is thus surprising.

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In contrast

South-based cement manufacturers saw steeper price corrections in May and June compared to cement makers in other regions, according to Mangesh Bhadang, analyst at Nirmal Bang Institutional Equities. “The fall was around 35 per bag from the peak. At that level, improving Ebitda, especially with higher costs, is difficult. So, we have seen prices go up in the South in August," he said.

Simply put, after a dismal performance in Q1FY23, mainly on the realization and operating margin fronts, pricing discipline among cement makers in this region has kept prices on the higher side. How far these prices will sustain depends on whether or not cement demand improves meaningfully in H2FY23.

Meanwhile, the benefit of easing input cost inflation for all cement manufacturers is expected to reflect post Q3FY23 as high-cost inventory gets exhausted. Even so, the pricing outlook for South-based cement makers is not very encouraging because of oversupply in the region and higher competition.

“South-based cement companies have recently underperformed other regional markets because of a relatively weak pricing environment led by lower capacity utilization levels," said Ronald Siyoni, assistant vice president, research, Sharekhan by BNP Paribas. However, companies such as Ramco Cements and India Cements outperformed others in terms of year-on-year sales volume growth for Q1FY23, he said.

In short, unfavourable demand-supply dynamics do not bode well for companies having exposure to this region.

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