The improvement in cement prices seen during September remains positive for the manufacturers amidst rising energy costs.
The cement channel checks by brokerages indicate that improvement in cement prices continued in September led by major price hikes in East India.
For September 2023 average prices are up 4% month-on-month and for second quarter (Q2FY24) are up 0.5-1.0% sequentially as per analysts at Jefferies India Private Ltd.
East India has seen maximum price hikes and the effective price increase in the east from end-August to end-September is ₹50-55 per bag. The rest of the regions also have seen price hikes up to ₹20 per bag with the exception of South India, as per analysts.
The price hikes that took place in July- September quarter remain positive and will lift the sentiments for the sector, said Rajesh Ravi, Research Analysts at HDFC Securities. The expectations of any price improvement remained low in the monsoon impacted quarter that sees slowdown in construction activities. The industry has performed better than its historical trend, said analysts. In the past three years, the industry witnessed an average fall of ₹14 a bag through July-September versus the Q1 average price, said analysts at Elara Securities India Pvt Ltd.
Analysts feel that the demand has remained strong boosted by government spending in the pre-election year and also as monsoon was erratic.
Further the producers resorted to pricing discipline on the back of rising energy costs. International petcoke/coal prices have moved up further in September with overall increase of 30-40% from the July 2023 bottom, said Jefferies analysts.
The recent resurgence in fuel cost and supportive demand is stoking the price rise said analysts at ICICI Securities.
The price hikes are also positive since the all-India cement prices during the April-June quarter had seen little improvement as manufacturers resorted to pushing volumes for market share gains. The average cement prices during the April-June quarter had remained flat on a sequential basis while they were down almost 2% year-on-year. This had also meant that while cement companies reported strong volume growth, profitability did not improve much. The operating profits (profit before interest tax depreciation and amortization) had declined 7.5% sequentially for data compiled for 42 companies during Q1 as raw material costs did not soften much.
Analysts at Jefferies said that 2QFY24 Ebitda performance is likely to be a tad better versus initial expectations. A strong 2Q exit price and more price hike announcements will negate energy cost inflation worry, though discipline remains key for these hikes to be sustainable.
The impact of raw material price rise is felt with a lag of a quarter and hence higher exit price in September also is important for Q3 profitability. Analysts at Elara also said price hike in September should favorably impact Q3FY24 margin.
However, the sustenance of price hikes will remain key also looking at the start of the festive season.
Given the industry’s poor track record to withstand sharp price hikes beyond a few months, sustainability of the recent hikes (in the face of the upcoming festive season) remains key, said analysts at ICICI Securities.
Even as fundamental sector concerns remain intact, the hikes may improve sector sentiment in the near term, they added.
The major concerns are pertaining to cement prices in South India that has not seen much price improvement. Though certain price hikes have been announced in October, analysts are skeptical. Rajesh Ravi said that looking at the high competitive intensity in South India, the price hikes may not sustain.
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