Shares of cement companies traded on a firm note in an otherwise weak market on expectation of strong demand outlook. While short-term demand has got impacted due to Covid induced restrictions, the long-term growth trajectory of the sector remains healthy on strong infra pipeline of government across roads, metros and irrigation segment and upcoming state and general elections. Pick-up in urban housing, commercial real estate to fuel demand further.
UltraTech Cement, Ambuja Cements, Prism Johnson, ACC, India Cements, Dalmia Bharat, Orient Cement and Birla Corporation from the S&P BSE 500 index were up between 2 per cent and 4 per cent on the BSE in intra-day trade on Thursday. In comparison, the S&P BSE Sensex was down 0.98 per cent at 60,543 points at 12:14 pm.
In past three months, most of the cement stocks had underperformed the market by recording negative returns, as compared to 16 per cent rally reported by the S&P BSE Sensex.
Recovery in rural housing, higher MSP (minimum support price) for kharif corp; improved food grain production in rabi harvest; a third consecutive normal monsoon and pick-up in infrastructure-led construction activity are likely to drive cement demand off-take, UltraTech Cement said while announcing September quarter results on October 18.
However, continuous increases input costs like coal, pet coke and diesel pose a challenge for the industry. “UltraTech is confident of weathering the storm of increase in input costs, with its sustainable efficiency improvement programs, accompanied by increase in selling price to absorb the increase in costs,” the company said.
Cement prices are now back to pre-Covid levels. Price hike of 10 per cent is required to achieve EBITDA level of Q1FY21 (highest ever reported). Companies are now in a better position to pass on the cost pressure on to consumers, analyst at ICICI Securities said.
Meanwhile, ICRA expects the all-India cement production to report an increase by around 12 per cent to 332 million MT in FY2022 which will be supported by the pent-up demand, rural housing demand and the pickup in infrastructure activity.In FY2023, the production is expected to grow by 8 per cent to around 358 million MT.
The significant pick up in the infrastructure activity backed by the National Infrastructure Pipeline (NIP) is likely to see healthy traction in terms of new project awards and execution in medium term, which is expected to boost cement demand, ICRA said in cement sector press release.