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Published on 18/03/2021 9:59:54 AM | Source: HDFC Securities Ltd

Cement Sector Update By HDFC Securities

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

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Cement dealers

We hosted cement dealers from seven states of India, covering Central, West, East, and South. All the dealers highlighted that demand continues to be strong in 4QFY21 so far, both from trade and non-trade segments. Good rebound in the non-trade segment has allowed cement players across all regions to sharply increase non-trade prices in the past one month. In the trade segment, while prices held on to their healthy levels in north and central regions, prices in west, south and east regions have recovered over the past one month. Dealers also highlighted that companies’ promotional and marketing activities are nearing their pre-COVID levels. Digital adoption has gained post COVID whereby companies are communicating on their dynamic incentive structures and pushing the channel on meeting their monthly/quarterly/annual targets.

* Madhya Pradesh: Cement demand has been robust, especially in non-trade segment (infra projects led). This has helped recovery in non-trade prices by INR 30-40/bag during Feb’21. In trade too, demand remains strong, thereby allowing prices to remain stable. The dealer noted that these prices should hold in March. Post March, softening in government demand can again lead to a fall in non-trade prices. UltraTech has been the leading brand in MP due to its strong distribution capabilities and strong hold on sales influencers.

* Gujarat: Cement demand in the region has been good in non-trade due to high demand from real estate segment and trade demand has been at par with last year. Cement prices have increased during Feb and March across both segments. Prices have increased by ~INR 15-20/bag during both the months. According to him, the prices will stick through due to strong demand. In this region again, UltraTech is the top brand, followed by Ambuja. Rajasthan-based players are also major suppliers in the state.

* Uttar Pradesh: Cement demand in the region is strong in both the segments. Price hike taken in trade segment is to the tune of INR 5-10/bag, whereas in non-trade, it is ~INR 30-50/bag. He expects these prices to at least stick and may even inch up by INR 10/bag.

* Chhattisgarh: The dealer noted that demand has been robust from all segments in the state. UltraTech is the leading brand in the area. Among the major sellers, Shree Cement is competitively priced in the Chhattisgarh market. Currently, the companies are giving good discounts to its dealers.

* West Bengal: There is a supply shortage in places like Kolkata owing to strong pre-election cement demand and railway wagon shortage (as they are diverted for crop movement). This has helped companies to take a price hike (INR 30-50/bag in March) after remaining flattish in the past two months. The dealer cautioned that these prices will not hold post March, as election spending takes a break. The state election will start at end of March’21.

* Maharashtra: The demand is being driven by strong demand from infra and real estate segments. Even IHB segment is performing well. In the region, UltraTech, Ambuja and ACC are the leaders, but Shree is gaining good traction (in Pune region) owing to its competitive pricing along with strong service capabilities. Over the past one month (mid-Feb onwards), there has been price increase in 2-3 tranches across both trade and non-trade segments. A total of INR 40-50/bag price increase has been affected in this period.

* Tamil Nadu: Most players have increased prices by ~INR 20/bag in March, after sluggish/marginal weakness in Jan/Feb. However, a few companies (mainly tier-2), which were offering higher rate differences have reduced the difference leading to effective increase of ~INR 50/bag. Amidst huge OPC demand and constrained supplies, prices are holding on. As per the dealer, companies are looking to announce another hike so that at least the first price hike is sustained.

 

Cement marketing executives We hosted marketing executives of two unlisted cement companies to discuss industry trends in the east and west regions. Both the experts noted that cement demand is currently robust – across trade and non-trade. Prices in both the regions have firmed up. They also noted that brand promotions by the cement companies have reached pre-COVID levels. Also, there seems to have been increased digitalisation of various activities – sales-force locations, logistics tracking (movement of trucks), billing through ERP/SAP, stock monitoring, competition activities and dealer information (his target, performance, payment cycles, etc).

* Western region: In terms of market size, west is currently at ~5mnMT per month – 2.7/2.2/1.5mn MT per month in Maharashtra/Gujarat/Goa respectively. Cement demand in the region is picking up. The demand is coming from all segments – infrastructure sector, realty and even from IHBs, PMAY, and affordable housing sector. The supply influx from southern states has reduced (vs 30% earlier) due to demand recovery in south and due to shortage of railway wagons. This is helping business for regional players in the west. Over the past month, cement price across the west has gone up by INR ~30-40/bag. If demand persists, further price increase is possible during in Apr/May’21.

* The expert suggested that Shree Cement’s Pune plant may get operational by 1QFY22. Dalmia’s Murli plant and Birla Corp’s greenfield expansion in Maharashtra will come in FY22. The western region is quite mature and, hence, the price difference between different brands is not more than INR 10/bag. In the west, slag cement usage has been approved by all government agencies for use in infrastructure sector and demand from trade segment is also good.

* Eastern region: Prices in the east have been volatile owing to large capacity additions by various players. However, owing to strong demand momentum, utilisation has significantly improved currently, driving regional pricing power. Thus, companies have increased prices to the tune of INR ~30/bag in trade and INR ~20/bag in non-trade. Further, INR ~20/bag in trade segment can be achieved in the coming days of Mar-21. Initial demand post-COVID came from the rural sector and companies were focusing on premium cement sales. Current demand is also supported by non-trade demand (government infrastructure spends).

* Some of the current state-wise demand in the east is as follows: Bihar/WB/Odisha ~2/2.1/1.3mn MT per month respectively. Regional demand has been growing at ~20%, 2QFY21 onwards. It is not only driven from tier 1/2/3 cities but also from tier 4/5 cities and villages. He also noted that the sharp increase in slag cost has impacted sales of PSC (slag cement) in the region.

 

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