Cement prices move up, but not enough to move the needle

The cost pressure of the sector is easing due to lower cost of key fuels required in the process of making cement, petroleum coke and coal. With this, the focus is shifting to the pricing trajectory of cement companies. After a seasonally weak September quarter, expectations were that the December quarter would see a meaningful pick-up in prices. But sequential earnings growth remained muted for large cement makers such as UltraTech Cement Ltd and Shree Cement Ltd. Against this backdrop, the latest round of price hike provides some relief. At present the average price of a cement bag weighing 50 kg at all India level is hovering around 370-375, analysts said.

What’s more, the near-term demand outlook of the sector is encouraging, giving hope that the price rise may continue. During the quarter ending March, individual home construction activities pick up. According to global rating agency Moody’s Investors Service, a growing housing sector, which typically accounts for 60-65% of India’s cement consumption, will continue to be a key demand driver. Moody’s said on February 13 that cement production in India is estimated to grow by around 6-8% in FY23 and FY24.

Also, in the pre-election year, increased government spending on infrastructure and related projects is expected to drive cement demand. The government has announced several measures in the Union Budget 2023 to boost urban housing and infrastructure.

In such a situation, due to the increase in prices, there is bound to be an improvement in the receipts of cement companies in the March quarter. “Some cement stocks have seen gains in the last two trading sessions of the stock market on positive developments on price rise,” said an analyst requesting anonymity. But a meaningful and sustainable rally in shares of cement makers hinges on momentum. Improving margins and realisations,” he said. To be sure, sharp cement price increases are needed to move the needle significantly on the FY24 earnings outlook.