Shree Cement is also on the lookout to add new capacities although a final call on the same is yet to be taken.
Although weakened demand and new capacity additions were expected to further dampen prices, Kunal Shah, analyst at Yes Securities is of the view that the third financial quarter (Q3), ended December 31, 2019 will prove to be a strong one for cement firms, as earnings are expected to improve.
“It will be characterised by flattish trend of industry‐wide volume growth, healthy prices vis‐a‐vis last year and softening of input costs. Further, we expect distinct disparity in earnings among companies
as regional dynamics will come into play”, Shah said.
Industry officials estimated that particularly companies
which have exposure in the north and central zones will significantly outperform as compared to other region players.
So far, it is estimated that average prices have increased by around 3.5 per cent on a sequential basis whereby prices rose by Rs. 20 a bag in north, west and east India while it rose by Rs 10 in central region. In south India, however, prices remained on the lower side since November.
“With new capacity being added this year, prices may be rolled back with markets like east India expected to witness intense pressure”, Shah said.
However, it is expected that in the Q3 period, backed by optimal input costs, net realisation per tonne will improve by 1.6 per cent on a year-on-year basis.
Owing to muted demand conditions, the average capacity utilisation remained at a sub optimal level of 70 per cent and with the new additions in place this year, the level is expected to remain the same.
“Cement capacity always comes up in anticipation of demand. There is no reason to believe - demand won't pick up in the infrastructure segment with projects beginning to roll after finance issues are being resolved by concerted intervention by the centre and investment in rural areas. Individual housing segment will also pick up with better crops in many parts of the country plus Central projects like PMAY”, Sandip Ranjan Ghose, chief operating officer at Birla Corporation said.
H M Bangur, managing director at Shree Cement is also, bullish on the new additions to capacity.
“The additions have to be looked into from a long term perspective and demand is expected to improve this calendar year. There is going to be enough opportunity for cement companies
to cater to the growing demand in the future and so, capacities will have to be put in place prior”, he said.
According to Bangur and other industry officials, while there may not be much traction from the individual house builder segment in the near term, government spending on infrastructure is expected to boost demand.
“The only weak link in the chain remains large real estate projects which are mired in its own problems; but, it should be partially off-set with development of suburban and small towns - smart cities and low cost housing”, Ghose added.
Nevertheless, the increase in prices is poised to hover only around two per cent.
According to Care Ratings, as a result of the ongoing muted demand conditions, the sector growth may fall to 5-7 per cent for the 2019-20 fiscal year from the 13.3 per cent growth in 2018-19.
Industry sources said that demand has already improved slightly in most regions although liquidity issue continues to persist. This Monday, prices were hiked in all regions except south, where the announced price hike is expected to be implemented soon.