New Delhi: Cement price hikes at the end of March and early April have failed to hold as more capacity came on stream during the year; however, rising volumes and cooling input costs are expected to lift profitability for cement makers, analysts said.
During the first four months of 2023, cement makers attempted to raise prices at least thrice; however, the hikes did not sustain, said Mangesh Bhadang at Centrum Institutional Research. Cement prices averaged at ₹358 per 50 kg bag during Q4, almost at same levels as in Q3. According to Bhadang, while the North region saw prices improve by a marginal ₹5-10, most other regions so no change.
Analysts at Asian Market Securities said the attempted price hikes after the end of FY23 were not going through, except in a few states.
In the South, Central and East India, new capacities have boosted competition, prompting companies to focus on volumes rather than price. Demand is strong as well, and the manufacturers therefore are prioritizing market share gains. As prices of inputs such as coal, petcoke and crude oil fell, profitability has improved and hence, without feeling heat on margins, they are also not under any urgency to focus on prices.
Average prices of US petcoke and South African coal fell 8% and 34% sequentially in Q4, prompting analysts at Motilal Oswal Financial Services (MOFSL) to expect average Ebitda per tonne at cement companies to improve 14% sequentially during Q4. Ebitda stands for earnings before interest, tax, depreciation and amortization.
MOFSL also expects aggregate sales volume for its coverage universe to increase 12% year-on-year and 17% sequentially.
Centrum’s Bhadang too expects Ebitda per tonne that improved by ₹200 per tonne sequentially during Q3, to further improve by ₹160-180 a tonne in Q4.
Analysts at ICICI Securities said that cement prices have tended to be weak in times of strong demand and high clinker utilization. The industry has also been unable to pass on the impact of huge cost surge even when demand is supportive. However, in troubled times (of weak demand), prices have been resilient, they added. The dynamic, therefore, has been counterintuitive.
According to ICICI Securities, cement demand in FY19 was up more than 13%, mainly owing to pre-election demand surge. In FY23 also, it is estimated to be up 10%. The jump in demand has also helped industry clinker utilization rise to more than 750bps from a year earlier to 78% in FY19 and by more than 400bps from a year earlier to 77.5% in FY23 . One basis point is equal to one hundredth of a percentage pont.
India Ratings and Research (Ind-Ra) expects demand to grow 8%-9% in FY24 (FY23 estimated at 9%, and five-year CAGR: 4.5%). It said the government’s infrastructure push ahead of the general elections in 2024 would be a growth driver like in the past three pre-election years where the GDP multiplier averaged 1.5x compared to the long-period average of 0.9x.
While Ind-Ra also expects profits to recover (Ebitda per tonne to recover to ₹950-1,000/t in FY24) on the back of softening power and fuel costs. However, as per India-Ra, large price hikes remain unlikely and they expect increase in cement prices to be restricted to low single digit in FY24 as companies focus on increasing volumes ahead of elections amid the large expansion plans and sub-70% utilisations, along with softening input costs.
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