Cement price hikes are here, but not enough to move the needle
After a hiatus, cement prices across India have seen a much-awaited increase. In the last few days, cement prices were hiked in north India by ₹10-20/bag, Jefferies India said in a report dated 18 February. Dealers indicated multiple factors such as seasonal uptick in demand, better discipline and shortage owing to continuing closure of ACC Ltd and Ambuja Cements Ltd plants situated at Himachal Pradesh, said the report. Cement prices were raised by ₹5-10/bag in the east/central regions and a few markets in the south.
The sector’s cost pressure is receding as the costs of key fuels required in the process of making cement, petroleum coke and coal are easing. With that, the focus is shifting to the pricing trajectory of cement companies. After a seasonally weak September quarter, expectations were that prices will see a meaningful jump in December quarter. But the sequential realization growth for large cement makers such as UltraTech Cement Ltd and Shree Cement Ltd was muted. Against this backdrop, the latest round of price increase provides some comfort. Currently, at an all-India level, the average price of one cement bag weighing 50 kilograms is hovering around ₹370-375, said analysts.
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What’s more, the sector’s near-term demand outlook is encouraging, offering hope that the price hikes may sustain. During the quarter ending March, individual home building activities tend to pick up. According to global ratings agency Moody’s Investors Service, a growing housing sector, which typically accounts for 60-65% of India’s cement consumption, will remain a key demand driver. Cement production in India is estimated to grow by around 6-8% over FY23 and FY24, Moody’s said on 13 February.
Also, in a pre-election year, the government’s increased spending on infrastructure and related projects is expected to drive cement demand. The government has announced various measures in the Union Budget 2023 to give urban housing and infrastructure a boost.
As such, realizations of cement companies in the March quarter are set to improve aided by price hikes. “Some cement stocks saw an up move in the past two trading sessions of the stock market, owing to positive developments on price hikes,” said an analyst requesting anonymity. “But a meaningful and sustainable rally in shares of cement makers depends on the pace of improvement in margins and realizations,” he added. To be sure, sharper cement price increases are needed to significantly move the needle on FY24 earnings outlook.
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