Cement companies bet on price hikes to revive profitability in H2

Mumbai: Cementmakers are relying on price increases and a seasonal pickup in construction activity to offset a weak first half of the fiscal year, when rising input costs weighed on profitability.

The industry's strong seasonality generally seen in the December and March quarters is likely to be supported by government spending on infrastructure while prices are seen as anchored by higher production costs.

While the September quarter is seasonally weak for cement producers, prices were relatively stable this year as weak monsoon rains in most parts of the country led to more days of construction activities.

Cement prices in India have been picking up since late September and are now ₹15-20 higher per 50 kg bag as compared with average prices in the September quarter.

"Both September and October have seen healthy price increases, helping us recover a part of the cost inflation," Dalmia Bharat managing director Puneet Dalmia said recently. "We are hopeful that the positive momentum will continue, going forward." Prices inching up steadily should help offset the rising cost pressures, he said.

For the September quarter, the profitability of most players, except UltraTech Cement, was lower than the previous year, weighed down by higher fuel, power, logistics and packaging costs.

While companies expect costs to remain elevated in the current quarter as well, they see a pickup in profitability.

"The average ₹20 price increase should totally defray the cost increase, and we'll have a delta benefit in realisation in Q3 versus Q2," Nuvoco Vistas Corp managing director Jayakumar Krishnaswamy said.

Krishnaswamy expects the recent price hikes to "stick" as demand opens up after Diwali.

If prices remain stable and the increase in cost is in the range of ₹100-120 per tonne, there is likely to be an improvement in overall profitability, he told analysts recently.

Market leader UltraTech Cement is also optimistic on cement prices.

"Prices have risen substantially in October and continue to stay high," chief financial officer Atul Daga said. "I sense that there is more price improvement that will happen in the near future, in the next couple of months," he said.