 "Cement prices decline across India in December")
After India witnessed its best monsoon in 20 years, analysts put their heads together to measure the cascading impact on demand. At the end of the second quarter, it was widely expected demand for consumer goods, automobiles and cement would pick up on good rains.
The fall in cement prices across India indicates demand continues to remain very weak. In December, prices of cement across India on an average are down Rs 15 a bag, as demand remained weak, even after a good monsoon. Construction activity has remained weak throughout the country, especially in pockets where there is a ban on sand mining.
After a rather bad second quarter (July-September), analysts had pegged their hopes on possibility of a pick-up in the third quarter. Compared to last year, the industry’s operating profits nearly halved in the second quarter. Analysts say in the second quarter, cement sales fell sequentially by eight per cent and prices fell three per cent on weak demand. The third quarter may not be very different. While prices declined across India, western India saw the highest fall. Dealers claim prices in Pune declined the most by Rs 30 a bag, while in other markets, it decreased Rs 15-20 a bag.
One of the standard reasons for depleting pricing power of the industry is also the seven per cent increase in capacity (compounded annual growth rate) over FY13-16. Karvy Strock Broking’s cement analyst Rajesh Kumar Ravi believes this capacity addition would keep utilisation levels at 73 per cent, one of the lowest in 25 years. Rising input costs and the rupee’s depreciation have also led to an increase in inventory levels.
The third quarter is expected to see the sector’s operating profit decline even further, but the worst is possibly over. However, demand has to pick up in the fourth quarter of the current financial year, if rising cost pressures have to be mitigated. Most analysts have a neutral view on the large cap cement stocks such as ACC and Ambuja. ICICIDirect remains positive on ‘operational cost leaders’ such as Shree Cement and UltraTech.
The fall in cement prices across India indicates demand continues to remain very weak. In December, prices of cement across India on an average are down Rs 15 a bag, as demand remained weak, even after a good monsoon. Construction activity has remained weak throughout the country, especially in pockets where there is a ban on sand mining.
After a rather bad second quarter (July-September), analysts had pegged their hopes on possibility of a pick-up in the third quarter. Compared to last year, the industry’s operating profits nearly halved in the second quarter. Analysts say in the second quarter, cement sales fell sequentially by eight per cent and prices fell three per cent on weak demand. The third quarter may not be very different. While prices declined across India, western India saw the highest fall. Dealers claim prices in Pune declined the most by Rs 30 a bag, while in other markets, it decreased Rs 15-20 a bag.
One of the standard reasons for depleting pricing power of the industry is also the seven per cent increase in capacity (compounded annual growth rate) over FY13-16. Karvy Strock Broking’s cement analyst Rajesh Kumar Ravi believes this capacity addition would keep utilisation levels at 73 per cent, one of the lowest in 25 years. Rising input costs and the rupee’s depreciation have also led to an increase in inventory levels.
The third quarter is expected to see the sector’s operating profit decline even further, but the worst is possibly over. However, demand has to pick up in the fourth quarter of the current financial year, if rising cost pressures have to be mitigated. Most analysts have a neutral view on the large cap cement stocks such as ACC and Ambuja. ICICIDirect remains positive on ‘operational cost leaders’ such as Shree Cement and UltraTech.