Eye on cement sector; Birla Corporation, JK Laxmi Cement can rally over 20% each in next 12 months
cement sector as construction activities take a back seat due to the monsoon. However, this time demand remains buoyant due to weak monsoon, elevated pre-election spending, infrastructure development, and sustained demand from real estate as well as capex-intensive industrial projects.
Cement prices have largely been stable from June 23 to exit across regions, except for the north, where prices have increased in July ’23.
Cement manufacturers have raised prices by INR30-35/bag in the East from the beginning of Sep’23 and another hike of INR30/bag has been announced w.e.f.
11th Sep’23. While, in other regions, price hikes are yet to be taken.
In the initial period, the price hike implemented in the East at the start of Sep’23 has been sustained.
However, the absorption of further price hikes should be monitored closely given the upcoming festive season and high competitive intensity.
The West region (primarily Gujarat) has seen strong demand recovery in Aug '23 post-subdued Jul’23.
In the state, volume is likely to jump ~30% YoY in July-Aug '23.
Cement volume is estimated to be up ~7% YoY in July ’23; whereas, it is likely to be higher by 10-12% YoY in August ’23.
Fuel prices (both petcoke and imported coal) rebounded in Aug '23 and surged ~11-13% MoM after witnessing corrections since the beginning of CY23. However, the spot fuel prices remained ~12-16% lower as compared to 1HCY23.
Most managements remained positive about cement demand, led by sustained demand from the government’s infrastructure projects, pick-up in real estate, private capex and housing demand from tier-II/III/IV cities.
We are positive on the cement industry dynamics for the next few years given a better demand outlook, intensified industry
