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Indian Railways reported a 23% increase in cement volumes transported in December compared to the previous month, data shared by the Ministry of Railways showed. However, on a year-on-year basis, volumes declined marginally by 1%.

An analysis of this data by JM Financial Institutional Securities Ltd showed that the year-on-year decline in cement sales can be attribute to short-term challenges in Central, East and South during the first half of the month.

In a report dated 5 January, the domestic brokerage house said that volumes in December 2021 were 14% higher compared to volume transported in September 2021.

"The demand recovered gradually over the course of the month with sharp bounce-back in 2H of December 2021. On a quarter-on-quarter basis, volumes transported in 3Q is marginally higher by 3% versus 2Q," added the report.

Investors would reckon that cement demand in the months of October and November was subdued impacted by various factors including a construction ban in the key National Capital Region. This led to a price correction at an all-India level during the first half of December.

"Q3FY22 witnessed subdued cement demand YoY. While demand gained pace in October 2021, it slowed down substantially in November 2021 owing to construction ban in the NCR region, heavy rainfall in Southern and few North states, sand issues in Eastern region as well as in parts of UP, and holiday season during Diwali festival," analysts at Axis Securities Ltd said in a report dated 5 January. The domestic brokerage estimates demand to contract 14-16% in November 2021. In short, the demand uptick seen in the second half of December is unlikely to compensate for weak demand in previous months.

To conclude, investors in cement stocks should brace for subdued volumes growth and a marginal uptick in realisations in the December quarter. Apart from that commentary on margins would be key in the backdrop of easing prices of petroleum coke and coal.

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