Cement encounters regional divide, but better road ahead

We are almost at the end of the financial year 2016-17 and investors are still wary of investing in the cement sector. The cement companies have not hiked any prices in March so far, as price hikes lead to diminishing demand for cement, making it more difficult to achieve annual sales targets.

Earlier during November and December 2016, cement companies could not raise any prices as demand for realty almost crashed due to demonetisation. Additionally, assembly elections in five states, especially in Uttar Pradesh, slackened the demand for infrastructure and realty, resulting in slowdown in construction activity. Moreover, peaking of coal and pet coke prices and freight costs too pressurised the input costs of cement companies.

However, considering the revival post demonetisation and the end of elections with a thumping win for BJP in Uttar Pradesh, cement companies are expecting a boost in demand for realty and infrastructure development. In view of this, cement companies in the North have adopted a unique policy of hiking prices twice a month. The companies had hiked Rs 10-15 at the start of the month and again hiked prices by Rs 10 recently. With this, each bag of 50 kg is now costing in the range of Rs 300-330. Cement majors such as Ultratech Cement, Ambuja Cement, ACC have hiked their cement prices in the same range.

While the North-based companies succeeded in passing on the burden to the end users, Southern cement companies are still under pressure. Higher penetration by unorganised or small players, extreme dry climate conditions, dumping by Gujarat-based manufacturers and subdued demand forced the Southern companies to cut prices by Rs 5-10 per kg.

However, we may expect demand revival in the South and growth in the North due to economic revival on the back of Housing For All, Smart Cities, Digital India and other mega schemes of the government. Stayed tuned for further updates on cement sector.