Cement prices in downtrend; down 5.5% versus Q3 average

6 Mar 2024 , 11:56 AM

• All India average cement price fell by 2.8% MoM or by Rs10 per 50- kg bag in Feb’24. This is on top of 2.3% decline seen in Jan’24. Cement prices have been on a declining trend since Nov’23; and thus, Q4FY24 average price is down 5.5% QoQ.
• Prices fell across regions with highest decline seen in Western region (~3.7% MoM), followed by East and South markets (3.5-3%); and least decline was seen in Central and North India (down ~2% MoM).
• In Q4 so far, analysts of IIFL Capital Services note that the all-India average price is 5.5% or by Rs20/bag lower than Q3 average prices, as subdued demand and focus on market share gains kept prices weak. Regionally, the highest fall is seen in South and East markets – down ~8-9% QoQ; whereas prices in other regions are down 3-4% QoQ.
• Moving into Mar’24; cement companies are yet to announce any price hikes, per channel check feedback. Further, dealers indicate pricing woes to continue in Mar’24; given the companies’ impetus on driving volumes to achieve year-end targets. Sharp decline in cement prices is likely to weigh on Q4 profitability.
• Demand in Feb’23 has improved as the month progressed – with many dealers indicating MoM growth in volumes; partly aided by lower base. However, on an overall basis, volume pickup has been slower than expected. While dealers expect MoM volume growth in Mar’24; they reiterated cautious outlook in near term given slowdown in construction activity (labour unavailability, delay in govt projects, etc.) in run-up to general elections. Cement companies are targeting positive YoY growth in Q4, despite strong base and upcoming elections.
• Weaker Q4 realisations will more than offset cost benefits and result in QoQ decline in industry profitability; also pose downside risk to analysts of IIFL Capital Services earnings estimate. While analysts of IIFL Capital Services remain cautious on the sector in the near term due to temporary slackness amidst elections; they maintain analysts of IIFL Capital Services positive stance on the back of improving profitability and expectation of better than historical volume growth over the medium term. Analysts of IIFL Capital Services remain positive on UltraTech, Dalmia Bharat and JK Lakshmi.