With the steep increase, the all-India average cement price has reached Rs382 per 50 kg bag. The sharpest rise was in the eastern region where the price rose to Rs400 from Rs326. Historically, the demand for cement in the September quarter is weak given due to low amount of construction activities given the monsoon period. Generally, cement firms promptly reduce prices when their sales volume is impacted due to low demand.
The bold stand to raise prices despite sluggish volume offtake is therefore unusual. Some analysts attribute this to the possibility of creating a higher price base in advance to take advantage of a demand recovery once the monsoon is over.
In addition, prices have increased at a time when raw material costs have once again started rising.
” Over the past three months, imported coal prices have increased by 15% and petcoke prices have increased by 28%. Even though, both coal and petcoke prices are still lower on a year on year basis, operating costs for the sector are likely to rise from March 2024 quarter onwards,” said Mangesh Bhadang, senior vice-president and cement analyst at Centrum Broking in a sector note. He expects that demand growth in FY25 will be weak amid higher costs, which may put pressure on the margins of cement makers.
Some analysts estimate that if cement firms are able to sustain the recent price increase, they are likely to post earnings before interest, taxes, depreciation, and amortisation (EBIDTA) per tonne of Rs1200-1300 in the second half of the present fiscal year from Rs800-900 in the past few quarters.According to Ravi Sodah, cement analyst at Elara Capital, the benefit of the recent price increase will reflect fully in the December 2023 quarter when margins of cement firms will improve.Given these factors, large cement companies such as Ultratech Cement, Ambuja Cements, and Shree Cement, which have a strong market presence and strong balance sheets are likely to benefit in the coming quarters.
