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Business News/ Markets / Stock Markets/  Cement  companies  eye  profitable  Q3
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Cement  companies  eye  profitable  Q3

An uptick in demand as monsoon draws to a close, price hikes lead to optimism for cement makers
  • Real Estate bookings remain supportive, and infra spending by the government is expected to be strong
  • The improving demand comes along with a decline in cost pressures, and firms have nudged up prices for October. (Photo: HT)Premium
    The improving demand comes along with a decline in cost pressures, and firms have nudged up prices for October. (Photo: HT)

    NEW DELHI : As the monsoon draws to a close and construction activity revives, cement prices are ticking up, brightening the outlook for manufacturers in the December quarter. The improving demand comes along with a decline in cost pressures, and companies have nudged up prices in many markets for October.

    Analysts at Jefferies India Pvt. Ltd said in a report, “Our interaction with dealers on September 2022 cement pricing suggests cement prices grew 3% month-on-month, and September 2022 exit price is 1% above quarterly average." The September quarter average price was down 5-5.5% sequentially, Jefferies noted. Hence, the better exit price at the end of Q2 and improving prices thereafter bode well for profitability of manufacturers.

    In North India, Jaipur has seen non-trade cement prices increasing by 10 per bag while in East India, prices are expected to rise after the end of Durga Pooja, analysts at Anand Rathi Research said. Companies are planning to raise prices by 15 (trade) and 30 (non-trade) in West India, while in the South, cement firms have announced hikes of 40-50/bag, analysts said. Prices in other regions may improve too, possibly after Diwali.

    Analysts believe better demand will support prices. They expect construction to gather steam after the festive season. Real estate bookings remain supportive, and infrastructure spending by the government is expected to be strong, driving cement demand.

    Analysts at Antique Stock Broking said that with most demand drivers looking positive, FY23 could see strong 10% year-on-year demand growth, with demand in the first half of FY23 already in excess of 12% year-on-year (y-o-y) and the third quarter also likely to see 10-15% y-o-y growth on a low base.

    Analysts remain optimistic on FY24 demand as well, thanks to higher government infrastructure spending owing to elections in Maharashtra, Andhra Pradesh and Telangana in the first half of FY24.

    For now, apart from some uptick in demand and pricing, receding cost pressures are also expected to help. Petcoke prices have corrected by 25-30% over the past 3-4 months, and 250/tonne benefits of the same are likely to reflect from 2HFY23, as per analysts.

    “This is likely to bring some respite at a time when analysts expect a steep decline in per unit profitability for cement makers during Q2. We expect our cement universe to report 37% y-o-y Ebitda fall for 2QFY23 led by peak costs and weak realization," said analysts at Jefferies. Ebitda per tonne could decline by 520 on year-on-year basis and 340 sequentially, they said.

    Though 2QFY23 is expected to be weak due to soft prices and the full impact of high-cost energy and higher exit price for September 2022, softening costs/base are among the positives for the third quarter, said analysts at Jefferies.

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    ABOUT THE AUTHOR
    Ujjval Jauhari
    Ujjval Jauhari is a deputy editor at Mint, with over a decade of experience in newspapers and digital news platforms. He is skilled in storytelling, reporting, analysing and writing about stocks, investment ideas, markets, corporates and more. He is based in New Delhi.
    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.
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    Published: 12 Oct 2022, 11:18 PM IST
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