Published on 13/09/2019 11:25:32 AM | Source: Reliance Securities Ltd

Cement Sector - Prices Remained Resilient despite Weak Demand - Reliance Securities

Posted in Broking Firm Views - Sector Report| #Cement Sector #Sector Report #Reliance Securities Ltd

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Prices Remained Resilient despite Weak Demand

* Cement prices continued to remain resilient in Aug’19, as all- India average price declined marginally by ~Rs3-5/bag to ~Rs305-310/bag despite demand momentum remaining tepid and volume witnessing further decline on MoM comparison in several pockets.

* Notably, average prices corrected by ~Rs20-25/bag so far from the peak level in May’19 as against negligible price contraction in last year during the same period. But still, all-India average price is ~4% YoY higher mainly led by sharp price recovery in Northern and Central regions.

* Dealers opined that continued slowdown in government projects led by delay in payments continued to hurt demand, though seasonal weakness in demand covered the issues as of now. Dealers are hopeful for demand revival post festivals with the likely pick-up in the government expenditures. Further, favourable monsoon (almost nil deficit as of now) is expected to drive rural demand and better trade sales in the coming months.

* Sand issues persisted in several pockets due to mining ban during the rainy season, which are expected to ease shortly. However, recent mining ban in AP doubled sand prices to over Rs20,000 per truck and no immediate resolution is in sight as of now, while the government is expected to come up with new mining policy soon.

* There have been instances of select companies offering huge discounts and the price gap between Tier-I and Tier-II widened further by ~Rs10-20/bag.

* 2QFY20 Till Date: Prices in the Northern region appear to be the best with ~13% YoY growth to ~Rs310-315/bag (-2.4% QoQ) followed by Central region (+5.2% YoY and -2.3% QoQ) and Western region (+4.1% YoY and -6.7% QoQ). However, average prices in Eastern region (-0.4% YoY and -5.4% QoQ) and Southern region (-1.3% YoY and -11% QoQ) remained subdued.

* Whilst the prices are unlikely to witness any decline hereon due to monsoon approaching the end, the prices are likely to improve substantially (by Rs30-40/bag) in AP and Telangana shortly. Further, the companies in several pockets started hinting to dealers about likely price increase, possibly to push volume.


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