Published on 4/01/2018 4:43:18 PM | Source: Reliance Securities Ltd

Cement Sector - Demand Improves Moderately; Prices Remain Soft - Reliance Sec

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Demand Improves Moderately; Prices Remain Soft

Cement demand witnessed a moderate up-tick in Dec’17, as pick-up in construction activities post festivities and harvesting season supported the demand. Further, volume push by cement companies to meet calendar year-end target may help cement companies to increase sales volume during the quarter. While improved sand availability in Uttar Pradesh and Bihar albeit at higher price led to better sales volume, fresh imposition of sand mining ban impacted demand in Rajasthan markets. Most dealers cited that while real estate demand continues to remain dismal post RERA implementation, affordable housing projects and rural consumption have been the major driving force of demand during the month. They expect demand to improve further in coming months due to further improvement in infrastructure activities in the country during 4QFY18. All-India average price witnessed a moderate 0.9% MoM (Rs3-4/bag) improvement in Dec’17, mainly on account of price recovery to the extent of ~3% MoM in Southern & Central markets.

While the prices corrected by 1% MoM each in Western and Northern markets, prices remained flat in Eastern markets. Prices are expected to be hiked from current month as year-end targets prevented many companies to undertake price hike in Dec’17 so as to pass on recent spike in operational cost. Notably, all-India average price declined by ~2% YoY and ~3% QoQ in 3QFY18E, mainly due to significant price correction in Southern and Western markets. We expect price correction in 3QFY18E along with cost up-tick will take a toll on cement companies’ quarterly performance.

Key Takeaways

* A pick-up in construction activities post festivities and harvesting season aided cement demand to witness a moderate up-tick in Dec’17. Further, volume push by cement companies to meet calendar year-end target may help cement companies to increase sales volume during the quarter.

* Notably, improved sand availability in Uttar Pradesh and Bihar (albeit at higher price) led to better sales volume. However, fresh imposition of sand mining ban in Rajasthan impacted the demand in Rajasthan markets.

* All-India average price improved moderately by 0.9% MoM (Rs3-4/bag) in Dec’17, mainly on account of price recovery to the extent of ~3% MoM in Southern and Central markets. While the prices corrected by 1% MoM each in Western and Northern markets, while the prices remained flat in Eastern markets.

* Notably, all-India average price declined by ~2% YoY and ~3% QoQ in 3QFY18E, mainly due to significant price correction in Southern and Western regions. We expect price correction in 3QFY18E along with cost up-tick will take a toll on cement companies’ quarterly profitability.

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