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Sunday, September 8, 2013

Cement makers seen hiking prices in September

This story first appeared in DNA Money edition on Saturday, Aug 31, 2013.

Cement companies have decided to hike prices starting next month, according to some  dealers in the know. “It could be around Rs 50 per 50 kg bag in Mumbai,” said Peeyush H Shah, promoter, Shri Padmavati Enterprise, a Mumbai-based dealer.

The hike will be effective next week, he said, adding, “The increase, from what I understand, will be taken by all cement manufacturers”.

In a cement sector review on Friday, Mihir Jhaveri and Prateek Kumar, analysts with Religare Institutional Research, said that though some dealers have indicated about manufacturers pushing for hikes from September owing to input cost escalation and the rupee’s decline, the move is not sustainable given the weak demand scenario.

Based on their discussions with over 40 dealers across 30 Indian cities, the Religare analysts said cement prices took a sharp hit during August after remaining relatively stable during July. “Prices in regions have corrected in the range of Rs 10-50 per bag in both trade and non-trade segments. The north and central markets witnessed a sharp fall of as high as Rs 40-50 per bag for select brands. 

"In Andhra Pradesh, prices have corrected by Rs 60 per bag after sharp hikes of Rs 60-80 per bag in June. Other southern states have seen a milder decline of Rs 10-15 per bag. Declines in the western and eastern regions have been in the range of Rs 10-30 per bag,” the duo noted.

The decline was primarily led by increased supply due to the entry of new players, poor demand owing to a weak macro and shortage of materials (sand/brick), and good monsoons across most regions.

The current all-India trade segment average is pegged at Rs 280-285 per bag as compared to the estimated average of around Rs 290-295 per bag in the quarter ended June.

Cement prices in the non-trade segment were lower by Rs 10-20 per bag.
The decision to hike prices, industry experts feel, is certainly motivated by the fact that cement prices suffered significantly in July and August. And with input costs continuously on the rise, a price hike is the only way to stimulate demand and deal with the current slump in the market.

“Cement companies are expecting construction activity to increase considering the monsoon season is almost getting over, and are using this opportunity to bring prices back to the pre-monsoon levels,” said an analyst with a domestic brokerage.

Maintaining a cautious outlook on cement sector for the current quarter, the Religare analysts said that sluggish demand and weak pricing would likely keep profitability under pressure. Also, if prices fail to revive in September (with monsoons still prevailing in some regions), realisations are likely to be sharply lower again on a year-on-year basis, exasperated by last year’s high base due to delayed monsoons.

“With minimal benefits from lower international coal prices (owing to depreciation of Indian rupee), operating profit per ton (ebitda/t) of cement companies could see a quarter on quarter dip in the range of Rs 200-250 (depending on regions, but mid-caps likely to be hit more). The July-September quarter for the sector is also likely to remain muted, with sluggish volumes, weak pricing, cost pressures and a high base,” the analysts said.

A top official of a leading cement firm, however, denied any possibility of pan-India price hikes, saying it would more likely be a regional. “It’s very difficult to say if there will be a price hike in September. It is also the ‘Shraadh’ month and is not considered auspicious, so demand from the real estate sector will anyway be muted. As for festive season, I think there is still some time for that,” the official said.

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