The Rise of the Cement Industry: A Promising Season with Price Hikes

cement industry price

Demand and profitability in the Indian cement sector improved in the first half of the year, while realizations might also improve due to pricing-led growth. Discover the latest trends and developments in the cement industry, including price hikes and future predictions. Stay ahead in this promising season with our insightful article!

On a pan-India basis, prices dropped by around 2.5% between April and August 2023. This trend has reversed in September.

Two price hikes of cement industry have been announced in East India, one in September and another in October.

Research by ICICI Securities suggests that with East India as a flag bearer, North and Central India have recently raised prices by 10-15 per bag, with a sharp spike expected in South and West India for October 2023.

The cement industry has a poor track record when it comes to withstanding sharp price hikes beyond a few months, which is why analysts are watching this closely.

As long as the price increases of cement industry continue, there is a potential earnings upgrade risk, says ICICI Securities.

According to analysts, cement stocks have experienced a correction in the last few weeks along with a broader correction in the markets.

According to a report by DAM Capital, UltraTech and Dalmia remain top picks and Ramco and Nuvoco are good mid-sized companies. In the midcap space, Motilal Oswal selects J K Cements for its better growth plans, and in the small cap space, he picks J K Lakshmi Cements for its attractive valuations and regional presence.

India Cements-2.9%
Dalmia Bharat21%
JK Cement-0.8%
JK Lakshmi Cement-1.5%

Levers of demand-cement industry

The first half of FY24 saw demand growth of around 13-15%, according to Crisil. While July demand was affected by heavy rains, it rebounded strongly in August due to low rainfall and strong underlying demand.

According to a report by Motilal Oswal Financial Services, cement volume in July was up around 7% year-over-year; in August, it is likely to be up 10-12%.

Demand for cement is expected to remain strong due to the government’s infrastructure push and increased activity in rural and urban housing. Government infrastructure spending accounts for 30% of annual cement sales, while housing sales account for 55%.

It is expected that India’s cement demand will grow 10-12% year-on-year to around 440 million tonnes in FY24, according to Crisil.

Competition and crude oil

Despite the crude oil price rally seen over the last three months, good demand and price hikes can help the sector withstand it. Power and fuel account for 30-35% of the sector’s total production costs. As fuel prices rise, transport costs will also rise, though with a lag effect.

There are, however, structural problems as well. For instance, aggressive capacity expansion plans by Adani-owned cement companies like Ambuja and ACC can alter the supply-demand dynamics in the sector.

In addition, the South markets are already highly competitive and players have been aggressively vying for market share.

Neither in absolute nor relative terms, this significantly hurt South-based companies’ profitability. The aggressive volume push strategy and current levels of profitability in the South are unsustainable, resulting in a mean reversion of pricing, according to DAM Capital.

In addition to pricing growth, the sector’s fortunes may be affected by a possible slowdown in government spending due to general elections. Uneven monsoons will affect rural housing demand further.

Also Read:

Editorial Director
I'm Shruti Mishra, Editorial Director @Newsblare Media, growing up in the bustling city of New Delhi, I was always fascinated by the power of words. This love for words and storytelling led me to pursue a career in journalism. In this position, I oversee the editorial team and plan out content strategies for our digital news platform. I am constantly seeking new ways to engage readers with thought-provoking and impactful stories.

Leave a Reply

Your email address will not be published. Required fields are marked *