Realisations still under pressure for cement firms as demand remains muted

With growth having shrunk 0.5 per cent year-on-year during FY20 so far, as per latest estimates, price recovery seems distant

The declining trend in cement prices has not seen any respite in November, even as demand remains elusive. While expectations of some uptick in demand after the end of the festive season have been belied, the average cement prices have remained under pressure in the absence of recovery in demand. 

Analysts’ channel checks suggest that pricing is under pressure month-on-month (MoM), compared to the previous quarter. All-India retail cement prices were down by 2 per cent MoM during November, suggests Centrum Broking’s channel checks. Cement demand in October 2019, according to the latest official data, has shown a decline of 0.5 per cent year-on-year, the brokerage added.

After steep price hikes taken by cement players just before the start of the financial year, realisations have continued to weaken regularly, with weakness in prices due to demand woes. The all-India average cement price per 50 kilo bag in October-November at Rs 303 was lower than the Rs 309 in the July-September quarter and much lower than Rs 360 in the April-June quarter.

South and east India remain the weakest links in terms realisations. The western markets, especially Maharashtra, are also feeling the heat of pricing pressure in neighbouring southern states. Given the excessive supply in the Vidarbha region (from Andhra Pradesh/Telangana) and in south Maharashtra (from the Gulbarga cluster), the pricing dynamics in the western region have changed, say analysts. 

Though the Gujarat region had earlier maintained a stronger trajectory supporting average prices in west India, the pressure is now evident there as well. Analysts say that in south Gujarat, ACC and Ambuja Cements are pushing dispatches aggressively to meet their year-end targets.

Overall, only north India and central regions are seeing reasonable prices. Companies with major exposure to north India include UltraTech, Ambuja Cement, Shree Cement, JK Cement, JK Lakshmi Cement, and Mangalam Cement. Beneficiaries from the central region include UltraTech, Birla Corporation, and HeidelbergCement India.

Against this backdrop, analysts advise that investors be selective. Binod Modi at Reliance Securities maintains his positive stance on UltraTech in the large-cap space, and JK Cement, HeidelbergCement, and JK Lakshmi Cement among mid-caps. UltraTech also remains the pick of analysts at Centrum Broking, who prefer Ramco Cements among mid-caps.