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Sunday, April 14, 2013

Cement sales damp in peak season

This story first appeared in DNA Money edition on Tuesday, Mar 26, 2013.

Cement companies are grappling with low sales in the middle of peak business season due to feeble demand in most parts of the country.

As a result, they have not been able to take price hikes this month, which is traditionally the period for price hikes.

M Ravinder Reddy, head of marketing for India - Vicat Group and director of marketing at Bharathi Cement, said this March is turning out of to be different than the last few years.

“The primary reason, I’m told, is that the government has stopped payments to control fiscal deficit, as a result of which infra projects have taken a beating. The retail end also hasn’t grown due to drop in consumption. The year-on-year sales for the industry decline for March could be 4-5%,” he said.

The sales data will start flowing in from end of the month.

While firms have hiked prices in February, they could not raise them further this month.

“This time around, we are not seeing a great improvement at all. It’s a flat market scenario for the overall cement sector,” said a senior official at a cement firm.

Mihir Jhaveri and Prateek Kumar, analysts with Religare Institutional Research, said in their report that while January and February witnessed sharp hikes, a cool-off is evident in March as manufacturers reeled under the dual pressure of feeble demand and a poor macroeconomic scenario.

“The all-India average price has been nearly flat month on month in March. Only in fiscal 2002 – when India’s GDP dipped below 4% – did prices witness such pressure, leading to a price decline in March (over February),” the analysts said.

In Gujarat, after correcting Rs10-30 per 50-kg bag in the first fortnight of February, prices have remained stable over the last fortnight. The market, however may remain weak in April and dealers anticipate some moderation in cement prices from current levels.

In Maharashtra, the sand/water shortage has impacted demand.  Prices in Mumbai remained stable despite weak demand; however, Pune saw a correction last week after staying stable during the past fortnight.

In Delhi, prices have hovered at Rs275-280 per bag despite several attempts by manufacturers to increase prices.

The Uttar Pradesh and Madhya Pradesh markets saw prices rise to peak by February-end and moderating thereafter by Rs 5-10. While Karnataka saw relatively stable prices, cement companies in Kerala reduced rates by Rs 10 this month. In Chennai, the hike of Rs 5 in February was reversed this month.

Also, dealers expects prices to decline in several parts of the country.

“Dealers attribute a part of the decline to stock clearance by March-ending companies. We estimate the current all-India average price at Rs 300-305 – nearly matching the price in February,” the Religare analysts said, adding the cement share prices may drop 5-6% as monsoon nears.

Follow Ashish K Tiwari on twitter @ashishktiwari

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