Rise In Prices Of Cement Fails To Sustain, Experts Believe Firms Will Be Pushing For Volumes In March
According to analysts, the average cement price in India was flat in January and only slightly increased in February as producers sought to increase volume and gain market share during the typically robust March quarter.The fourth quarter usually sees a rise in construction activity, which increases demand for cement.
Price Hike In Cement Witnessed
Analysts at Elara Securities (India) Pvt. Ltd said, “Our interactions with dealers, sales executives, and C&F agents reveal that while there were a few attempts at a price hike, bulk of them were reversed in the form of price cuts or discounts. As a result, the all-India average retail price improved by a mere ₹2 per 50 kg bag month-on-month to ₹379.”
According to analysts, price increases were attempted across markets. The strongest increases were in Central and North India, while South India remained a weak link.
The cement prices in Andhra Pradesh and Telangana had increased significantly earlier, although manufacturers based in the 2 states also supply to neighboring states like Maharashtra and East India, where the prices are lower. As a result, cement costs decreased in the South. Analysts claim that South India now has a greater chance of sustaining future price increases as a result of the decline.
Reasons For Hike In Prices Of Cement
According to Mangesh Bhadang, analyst at Centrum Broking, cement manufacturers aim to increase volume in order to increase operating profits when demand growth is strong. In Q4, he anticipates Cement Manufacturers‘ per-tonne profitability to increase to about ₹250 sequentially. According to Bhadang, an increase in operating profit due to volume will drive per-ton profit, with realization-led growth accounting for only one-fifth of the overall increase in Ebitda per ton. The earnings before interest, taxes, depreciation and amortization is termed as EBITDA.
According to analysts at Emkay Global, the cement sector’s profitability will rise by ₹150–₹200 per tonne sequentially, driven primarily by lower input costs and higher operating leverage. When demand began to increase in November following the holiday season, a similar pattern was observed in the December quarter.
Rise In Revenue For the Cement Industry
According to Sharekhan, the cement industry reported a 17.1% year-over-year increase in revenues during Q3FY23, helped by growths in volume of 11.5% and realizations of 4.6%. A similar pattern will be seen in the March quarter.
Industry insiders claim that because cement prices have been falling in South India since the beginning of the year, some of the price increases that occurred in the second half of February are continuing, though it is still unclear how long they will last.
Although price increases in March are likely, experts have their doubts about their sustainability. The firms will be pushing volumes because of the pressure of a financial year coming to an end, which is a major factor.
High Demand For Cement
While cement companies may attempt to raise prices in the face of robust demand, analysts at Elara Securities said these efforts will primarily be made to avoid any significant price drops. Analysts predict an increase in cement prices in Q1, and the current strong demand is laying the groundwork for this. Further demand is anticipated to be strong as well.
As per CRISIL Research, demand for cement grew by 11% from the previous year in the first 10 months of the current fiscal which was led by a fast execution of infrastructure projects along with a strong traction witnessed in real estate and affordable rural housing segments.
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