Cement investors in a tight spot
₹369 per bag (see chart). One cement bag weighs 50kg. This weakness in cement prices is hardly surprising given that the September quarter is seasonally weak for the sector.
Construction activities tend to take a backseat due to the monsoon. But it is also worth noting that cement prices have not improved for quite some time now. This, in turn, hurts the sector’s realization growth.
ICICI Securities Ltd’s analysts note that contrary to street expectations (of cement prices being flat sequentially), the realization per tonne reported by a majority of the cement companies in the June quarter (Q1FY24) dipped around 0.5-4.0% quarter-on-quarter (i.e. ₹20-230/tonne). And now with prices still weak so far in Q2, near-term realization growth outlook is muted.
One reason for cement prices being subdued is said to be the increased competition in the sector. The hunger for more market share, amid robust demand outlook and rising competition has prompted large cement companies to add capacities aggressively. “Cement prices usually witness a decline in Q2 owing to monsoon, this time also it is unlikely that there will be any sustainable price hikes, especially now when there is a tussle for market share," said Ravleen Sethi, associate director, CareEdge Ratings.
Some, such as the Adani Group, are also taking the inorganic route of acquisitions to boost capacity. With that, the trend of consolidation in the sector should continue. “As of now, capex expenditure intensity is expec-ted to remain elevated amongst cement companies as they are seeing strong demand tailwinds and also companies don’t want to lose their market share," said Sethi.
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