Price hike rollback, rising input costs dim outlook for cement

Mumbai: A sudden rollback of price increases in November due to low demand and the competition watchdog's likely scrutiny continue to weigh on cement stocks even as higher petcoke and coal prices dent profitability. Analysts believe the outlook on realisations for cement companies is not likely to improve anytime soon, making valuations look unattractive despite recent corrections.

Stocks such as Mangalam Cement, Andhra Cement, Deccan Cement, Kesoram Industries, Birla Cement, India Cement, and Ramco Cements have corrected between 10% and 20% in the past one month. Large cement companies such as Shree Cement, Ambuja Cement and ACC have also corrected 6-9%. The Nifty index declined 3.7% during the past one month.

After Diwali, purchasing power in the system has declined substantially, and construction costs have also increased, which resulted in the decline of volumes, said analysts,


"Festivals in the first half of November, limited availability of labor due to the harvesting season in rural pockets, ban on construction activities in Delhi, change in sand policy in Punjab and heavy rains in parts of south India resulted in restricted recovery in demand," said Ravi Sodah, analyst, Elara Capital.

According to domestic brokerages, in North India, companies rolled back Rs 10-15 per bag of price hikes of the Rs 35 per bag announced in October 21. In South and West India, there has been a rollback of Rs 10-20 per bag of the announced price hikes of Rs 20-50 per bag, said various brokerages.

In East India, too, weak demand led to a partial rollback of price hikes between 5 and 10 per bag. Analysts said that the near-term outlook is also not great for cement companies.

“Demand and pricing outlook for December is also bleak as generally it is a weak month for construction activities and year-end volume pressure from few companies will result in lower prices,” said Mangesh Bhadang, analyst, Nirmal Bang. “We believe that current demand trends are worrisome, and we expect margin pressure for cement companies to increase in the December quarter on account of weak pricing and elevated cost pressures.”

Volumes transported through railways in November reported a sharp decline of 19% over October and 12% year-on-year. However, some believe the margins of cement companies may improve from the March 2022 quarter due to declining input costs.