After a marginal price hike in April, pan India prices of cement declined with demand impacted due to general elections, heatwave situation and excess rainfall in some states. Per a report by InCred Equities, pan India cement prices have fallen by Rs 3-4 /bag (aroound 1 per cent) month-on-month in May 2024 and by Rs 4-5 (around 1.5 per cent) till date in Q1FY25F. However, the report suggested that some regions may attempt price hikes in June 2024, now that elections are over and the Narendra Modi-led NDA government has taken charge, and before the onset of the monsoon. Whether the price hike can be sustained will depend on the demand, which has remained unusual for the past few months.
Demand across regions
In South, InCred Equities said, demand continued to be on the soft side, which led to a reversal of the price hikes taken in April 2014. South India saw a decline of Rs 6/bag on a month-on-month basis and the prices in Hyderabad stood at Rs 350/bag vs. Rs 360/bag MoM. While some southern states received unseasonal rains during May 2024 leading to disruption of the channel, dealers indicated a price hike in the times to come.
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East saw a price decline of Rs 1-2/bag, with muted demand across regions and non-availability of labour due to the general elections. The month of May saw no price hike and dealers stated that there is “hardly any room for prices to go down further and
they expect a price hike of Rs 5-10/bag in June 2024F on resumption of normal operations post general elections”.
North region witnessed cement prices decline by Rs 2-3/bag in May 2024. However, dealers, per the report, expect some revival of demand this month due to seasonally late onset of monsoon in the region, but continued heatwave remains a concern for construction activity in the region. InCred Equities expect a price hike in June 2024.
West recorded a price decline by Rs 4-5/bag in May after staying stable for the past two months. “Prices in Gujarat declined by Rs 6-7/bag MoM due to competitive intensity. In Maharashtra, prices remained somewhat flat. Dealers expect the demand to recover from Jun 2024,” InCred Equities stated.
Central India saw a decline of Rs 2/bag. Even as dealers are expecting a slight recovery in demand, they don’t see any price hike in June.
Earlier, a report by Elara Capital stated that the all-India average retail price for cement dropped by Rs 4 per 50 kg bag month-on-month to Rs 356. However, it added, most market participants expect demand conditions to improve further in June and cement firms may attempt price hikes in the range of Rs 10-50 per bag during the month, with higher price hikes likely in East India.
So, what will prove to be key demand drivers?
While InCred Equities maintained that industry volume will remain impacted due to the slowdown in construction activity led by general elections, heatwave, and excess rainfall in some states during May 2024, it did not signal any room for significant demand recovery in the near term (1HFY25F), given the general elections results followed by the monsoon season which slows demand, as observed from the historical trend. However, long-term demand, it added, will remain intact on the back of key drivers like infrastructure and housing segments.
Infrastructure sector accounts for more than 24 per cent of cement demand, which is forecast to grow at a higher pace, primarily fueled by the government’s robust infrastructure development initiatives. “Over the past four years, government allocation to capital expenditure (capex) has grown by 3x, indicating a significant commitment to infrastructure development. Tourism infrastructure development, in our view, will bring in additional growth,” InCred Equities said.
Also, with Andhra Pradesh’s Chief Minister N Chandrababu Naidu announcing that Amaravati would be the capital of the state, there will be extensive infrastructural development work that will take place in the city in order to give it a new lease of life. According to industry estimates, about Rs 40,000 crore will now be required to build infrastructure and various government buildings in the city on the Krishna riverbank, nearly double the Rs 21,000-crore expenditure estimated by the Andhra Pradesh Capital Region Development Authority (APCRDA) during Naidu’s previous stint as the chief minister.
Besides, the housing sector is also gaining momentum with India transitioning towards becoming a middle-income country and a stable lending rate environment. Further, Modi 3.0 has also approved the proposal to provide 3 crore additional rural and urban houses under Pradhan Mantri Awas Yojana (PMAY). This will further help the demand recovery.
Furthermore, ICRA in one of its recent reports, stated that backed by healthy demand prospects for the cement sector, large cement companies are looking to increase their capacity and maintain market share through organic and inorganic expansions. Per ICRA, the market share of the top five cement companies witnessed a steep rise to 54 per cent as of December 2023 from 45 per cent as of March 2015, and it is expected to further increase to 55 per cent by March 2025, resulting in consolidation in the cement industry.
Anupama Reddy, Vice President and Co-Group Head, Corporate Ratings, ICRA, said, “While organic growth is expected to continue in the medium term, cement companies are also preferring the inorganic route to boost capacities rapidly, leading to consolidation in the industry.” There were 15 M&As in the last nine years in the cement industry with the average cost of the M&A ($80/MT) being lower than the cost of setting up an integrated greenfield cement plant ($110–120/MT), thus leading to capex cost savings. This, Anupama Reddy added, further entails access to readymade capacity, limestone reserves and prevents companies from the hassle of longer gestation periods for stabilisation of operations in case of a greenfield unit.
From: financialexpress
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