Cement demand declines with rising input costs in India

Cement stocks have been hit recently due to a decline in demand and rising input prices for the sector. Jefferies told the media that the prices of cement declined by 3% on a month-on-month (MoM) basis or Rs 11 per bag in May 2022. The company highlighted the risk of downgrades in earnings estimates has resurfaced. It said multiple markets declined due to weak demand and the smallest decline in the western and the largest in the central region. According to a report, prices declined in May across all the regions of the country with a drop of up to Rs 35 per bag every month. The cement industry sought a price hike in early May but rolled it back due to muted demand. The prices of cement bags declined by Rs 23 per bag in the south and Rs 18 in the central region. However, prices in eastern, northern and western regions have declined by Rs 17, Rs 15 and Rs 6, respectively. The rising price of coal and inflation, along with the shortage of labour, is a challenge for cement companies. According to JM Financial, petcoke prices have increased and might impact margins in the first quarter (Q1) of FY23. The volumes transported by railway freight indicate an improvement in demand on an MoM basis, as compared to last year, transported volumes in May 2022, with robust growth of 30% YoY. According to the Emkay Global report, industries expect demand improvement on June 22 due to a recent fall in steel prices and a likely increase in pre-monsoon construction activities. Companies have announced a price hike of Rs 15-20 per bag for the current month. Emkay Global has chosen UltraTech Cement and Shree Cement in large-caps, Birla Corporation in mid-caps and Sagar Cement in small-caps from the sector. JM Financial has identified UltraTech Cement, Shree Cement, ACC Cement, Dalmia Bharat, JK Cement, JK Lakshmi Cement, Sagar Cement and Orient Cement across the sector. Image Source Also read: New wave of consolidation is expected in the cement industry