Cement prices stay steady at ₹334 per bag in March: Kotak


Strong demand from infrastructure sector

All India prices of cement remained steady at ₹334 per bag during March despite increases in southern and eastern regions, according to a report by Kotak Institutional Equities.

South and eastern regions witnessed a price hike of ₹5 per bag while prices declined by ₹1-11 per bag in north, central and west. Since January, cement prices in the south had increased by ₹45 per bag.

Expensive valuation

“Prices in south are at ₹30-50/bag premium to other regions despite lowest plant utilisation among all regions. Higher prices will aid near-term earnings for companies with large south and west presence such as ACC, UltraTech (among pan-India) and Dalmia Bharat, India Cements and Orient Cement. We maintain our cautious stance on the sector on expensive valuations,” Kotak said.

“Based on the current price trend, we estimate the fourth quarter realisations for cement companies to increase by 2-3% quarter-on-quarter. Price increases will be higher for companies with large exposure in south,” it said.

Prices were steady in Rajasthan but declined by ₹5-10 per bag in Haryana, Himachal Pradesh and Delhi.

In Gujarat, prices declined by almost ₹15 per bag while they rose by ₹5-10 per bag in Maharashtra.

Prices also decreased by ₹5 per bag in the north eastern states. “We note that after recent increase, south prices are at premium of ₹30-50/bag to other regions. But, south markets still have the lowest plant utilisations across all regions,” Kotak noted in the report.

Pet coke prices rise

Prices of imported pet coke increased 5% to $97/tonne in March 2019. However, it was still lower by 20% from second quarter. Domestic pet-coke prices increased 3% to ₹9,150 per tonne in March 2019. But, it was down by 3% from Q2. Given lagged impact of inventories, we expect energy cost of companies to decline in Q4.

As per DIPP (Department of Industrial Policy and Promotion) data, industry volumes increased by 11% year-on-year to 30 million tonnes in January 2019. From April 2018-January 2019, cement production volumes increased by 14% to 276 million tonnes. Management narratives indicate strong demand from the infrastructure sector even though demand from the trade segment is relatively subdued.

“We maintain cautious stance on the cement sector on expensive valuations and on expectation of moderate improvement in earnings over the next two years. We believe large capacity additions will keep industry utilisations low over the next two years and will cap the overall improvement in profitability,” Kotak said in the report.


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