Price hike in October after sluggish Q2 is a cheer for cement stocks

A dealer channel investigation by Jefferies India showed that month-on-month cement prices rose nearly 3% in September. At the end of the month, on average, the price per 50-kilogram bag was 365 at all India level.

Jefferies’ October 1 report said, “Cement prices have improved in three out of five regions with the monsoon season in the previous phase. Prices were not hiked in the northern region as the region had a severe monsoon. ”

While the quarter-on-quarter price decline of 5-5.5% for 2QFY23 is higher than estimates, the exit price for the quarter is 1% higher than the quarterly average, the report added.

Apart from subdued cement prices, high input cost of petroleum coke and coal is another important factor which is likely to impact the operating performance of cement makers in Q2 FY23.

But from the second half of the financial year, things may start looking up for cement investors. Analysts say there has been some improvement in the demand trend in September. Second, input cost inflationary pressures are easing. During the quarter, imported coal prices stood at $388 per tonne on September 6, 2022, from a gradual decline and are currently at $300 per tonne, said analysts at IDBI Capital Markets and Securities Ltd., in a report on September 29, said analysts at IDBI Capital Markets and Securities Ltd. Tons. Benefit from moderation in input cost is likely to reflect in earnings after Q2FY23.

Also, a hike in cement prices was announced in some markets in October. For example, in the past, cement producers have announced an increase of Rs 15-20 per bag from the beginning of the month, the Jefferies report said. In the West, producers have signaled an increase in prices. 30 more per bag in Mumbai 15. Jefferies report in Ahmedabad said, “With further price hike announcements in some regions, there is scope for QoQ price hike for 3QFY23.”

The above factors working together will boost the sick margins of the sector.

Meanwhile, analysts at IDBI expect cement demand to improve further post Diwali. For FY23, the domestic brokerage house expects cement demand to grow by 9% year-on-year.

Investors will recall that in recent trading sessions, shares of several mid and smallcap cement makers have gained momentum on anticipation of a September price hike and consolidation, especially the completion of stake acquisition by the Adani Group in Ambuja Cements Ltd and ACC Ltd. After the. Price appreciation is a key factor that will decide the future course of cement stocks.