Cement Prices On The Rise

According to news reports, cement companies had raised the prices in Eastern and Northern regions of the country even before the budget.

This hike is likely to impact the bottomline of the cement companies as these are important input costs of the sector. Cement manufacturers have started increasing the prices from January 2013. The eastern region has seen a price rise by Rs 40-50 per bag. In the northern region too prices have increased by Rs 25-30 per bag, while that in Maharashtra have increased by Rs 20 per bag. In the southern region, however, the prices have remained firm due to the oversupply situation. In Gujarat, cement prices have already been increased in January 2013, but there is possibility of some correction there.

On the demand front, the cement sector has seen some weakness. The cement companies have stopped reporting their monthly numbers after the CCI probe last year and hence the exact volume growth cannot be analysed. The third quarter results have indicated softening of demand with an aggregate topline of the cement sector witnessing 8.9% YoY growth. The bottomline was down by 19%, indicating that the industry is seeing its cost pressure hurting its profitability.

We spoke to an analyst with a top brokerage house on the cement price hikes and outlook. The analyst, on the condition of anonymity, said that the sector looks good on medium to long-term perspective but said that there would be some hiccups for the next six months. The General Elections next year would be a main demand driver and hence some positive sign is expected after six months.

Speaking to us, Rajesh Kumar Ravi, a cement analyst with Karvy Stock Broking said that the prices are already on an up-trend. “For cement companies, this is the peak period and companies hike the prices in the first half of the year. From monsoon to December, companies clear the inventories.” He also said that on the whole, the cement companies would be reporting 9% volumes growth in FY14, compared to about 5-6% in FY13. He is positive on the sector and said that the price hikes are mainly based on the demand-supply scenario in the regions.

We believe that there could be a further correction in the cement stocks and hence one should wait before buying fresh stocks.