Sustaining price hikes crucial for cement companies ahead of Q4 results

Acquisition has been a key strategy for the company in scaling up its business
Cement makers have made smart gains on the bourses from their lows earlier in the year. While substantial price hikes in southern India has led to Ramco Cements, India Cements, and Orient Cement gaining 32-46 per cent on the bourses, players with a pan-India presence such as UltraTech and ACC, too, have risen 23-26 per cent. 

Led by robust demand, strong volume growth continues across regions. This, coupled with improvement in realisations (0-4 per cent sequentially) and the softening of raw material prices, is expected to drive Q4 profitability for most producers. 

Analysts say this is the fifth consecutive quarter of high growth. Data by HDFC Securities suggests that during Q4, the overall industry volumes grew 9 per cent year-on-year (YoY), even on a high base of last year (which had seen 19 per cent YoY growth).  

The strong volume growth, along with declining costs, should help improve operating costs, given prices of petcoke/diesel/coal prices have continued their downward trend during the October-March period. 

Binod Modi at Reliance Securities says the impact of softening fuel prices towards the end of the December quarter should be reflected in Q4 results. Benefits will also accrue as international coal prices softened a further 5-7 per cent sequentially in the December quarter. 

With benefits arising from volume growth and raw material costs in the March quarter, the good news is that prices across regions were hiked at the start of April. Demand continues to be very buoyant on the back of strong government-led infrastructure projects, mainly irrigation and low-cost housing, say analysts at Anand Rathi. Their channel checks suggest a third round of price hikes of Rs 20-25 recently in the south. Other regions, too, have seen hikes of Rs 15-25 a bag. Sustaining these remain crucial for the sector’s prospects, say analysts. Price hikes in the south of about Rs 20 a bag before this round had failed to sustain. 

In addition, the prices of pet coke, after softening, are seeing some increase and input prices of fly Ash and slag still remain high. Analysts at Prabhudas Lilladher say their underweight stance continues on account of marginal increase in prices and rising input costs.

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