Cement prices to be hiked, as demand improves
According to market analysts, supported by pent-up demand and a favourable base, the cement industry will likely exit the fiscal year 2021 with better than expected volume growth.
As per ICICI Securities Ltd estimates, the cement industry is likely to post the highest ever quarterly volumes of around 105 million tonne (mt) with 20-22% year-on-year (y-o-y) growth.
However, investors must note that volume growth, particularly in the March quarter, is also backed by the cement industries' push to meet year-end sales targets by reducing prices.
Research firm Macquarie Capital predicts 13% demand growth in FY22, thanks to the government's infrastructure focus, healthy rural demand and a potential recovery in urban housing demand.
With the prospects of increasing demand and ongoing input cost inflation, cement companies are likely to announce another price hike of at least Rs 10 per bag. One cement bag weighs 50 kg.
The latest dealers channel check by Elara Securities (India) Pvt Ltd shows that after a price hike of Rs 10-16 per bag in the March quarter, cement companies may take another increase in April.
Elara Securities told the media that cement firms attempted price hikes of Rs 5-35 per bag across pockets in early March, and prices over the month have been stable in most markets despite year-end pressure.
As per market intermediaries of Madhya Pradesh, South India, Maharashtra, Delhi, Rajasthan, Bihar, Uttar Pradesh and West Bengal, cement firms may attempt a price hike in the range of Rs 10-30 per bag in April, said Elara Securities in a report on 29 March.
Currently, across the country, the average retail price of a cement bag is Rs 363.
A recent concern for investors in cement stocks has been the increasing cost of input materials such as coke, petroleum, diesel and coal. With a low-cost inventory of raw materials about to exhaust for many cement makers, the street is worried about compression in operating margins.
However, analysts noted that historically, cement companies have passed on the burden of increased costs to consumers to defend margins.
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