Cement prices across India have not yet shown a sustained recovery, but the southern part of the country has been particularly gloomy. A recent dealer channel investigation by Nirmal Bang Institutional Equities showed this month (up to March 9), saw a fall in prices across major cities in the South 5-10 per bag compared to last month. A sack of cement weighs 50 kg. In comparison, while prices were stable in the north, west and northeast, they saw a marginal increase in east and central India, Channel Check showed.
While demand growth in the south has been good, intense competition has had an impact on prices in recent months. The market is also facing a situation of over supply.
“The weakness in prices in south India can be attributed to increased volumes by Andhra Pradesh-based cement makers,” said Jyoti Gupta, research analyst at Nirmal Bang. Tamil Nadu and Kerala (Cochin) markets are under pressure as companies prepare. To sacrifice prices for volume growth, he said.
Ahead of next year’s general elections, increased government spending on infrastructure and related projects is expected to stabilize cement demand across the country in the near term. Therefore, some companies have turned their attention to non-trade sales to meet this potential demand. A non-trade sale is when goods are sold directly by the manufacturer to the consumer. These are bulk sales to large buyers such as the government or large infrastructure/real estate companies. Note that average cement prices in the non-trade segment are usually lower than in the trade segment where cement is sold by companies to dealers, who in turn sell the product to consumers.
“Ramco Cements Ltd has recently added clinker capacity in Andhra Pradesh and the company is taking up non-trade sales, which was not the case earlier. “This could add to supply-side pressure,” said Mangesh Bhadang, senior vice-president at Centrum Broking Ltd.
This is likely to impact the earnings of companies investing in this sector.
“For South-focused companies under our coverage, such as Dalmia Bharat Ltd, Ramco Cements and Sagar Cements Ltd, on average, we can see a sequential decline of approx. 200/tonne in realizations in Q4FY23,” Bhadang said.
To be sure, cement prices across most sectors are expected to see an uptick in April as the June quarter is a seasonally strong quarter for the cement sector. That said, if the price hike is modest, it will hardly move the needle on the sector’s earnings outlook.
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