Cement Sector Update : Cost relief to provide margin support amid weak pricing and sluggish demand By Yes Securities Ltd
After a slowdown in 1Q and 2Q due to multiple issues i.e., prolonged monsoon impact, festive season and regional fund release issues, cement industry is likely to witness tepid growth in 3Q. Post the budget announcement, we haven’t seen any significant improvement in demand across the region, while prices are remains at the level of three years avg. prices. However, in Dec’24 most the pockets have taken a price hike in the range of Rs7-10/ bag (vs. Rs10-20/bag announcement). Although, we may see pressure on top-line growth, but lower operating cost may save margins. Especially players, having regional pricing power, strong market presence and higher usage of green energy to perform well in 3Q. And expect, on q-o-q basis major cost savings likely to be ACC followed by SRCEM and UTCEM in our coverage.
Although, cement prices have increased in Dec’24, we don’t see any significant impact in 3Q realization: Despite a price hike in Dec’24, the All-India avg. price in 3QFY25 remains below the five years avg. price of Rs365/bag. North and central has seen highest price hike in 3QFY25 followed by east and west, while southern prices remained weak and mere increase. Northern region avg. prices were up by Rs16/bag on QoQ basis, while central prices were up by Rs8/bag on QoQ basis in 3QFY25. East and west prices were up by Rs4/bag on QoQ basis, while south prices were only up by Rs1/bag on QoQ basis in 3QFY25 (mainly due to no price hike AP/TN in Dec’24). All India avg. cement prices up by Rs7/bag in 3QFY25 to Rs361/ 50 kg bag as compared to exist price of Rs354/ 50 kg bag in 2QFY25 but remains below the five years of avg. prices. However, our coverage realization to witness de-growth of ~8% YoY and flattish to marginal increase on QoQ basis. We assume, ACC, BCORP, ACL and SRCEM to report realization in the rang of 0.5-1% on QoQ basis, led by pricing power in their key market regions amid weak pricing environment, while UTCEM and DALBHARA to deliver flattish to negative realization.
Our coverage to report 8.4% YoY and 9.4% QoQ volume growth: SRCEM’s to report strong volume growth of 11.4% YoY and 30.3% QoQ among our coverage mainly led by 1). Strong presence in northern region, 2). Low base impact, 3). Volume addition from new units supported by stable demand in the region. While BCORP to report volume de-growth of 1% YoY but increase of 4.7% QoQ. As a pan-India player UTCEM may see a volume growth of 11% YoY and 9% QoQ, which we believe may be lower than expected at 75% capacity utilization. While ACC and ACL to report decent volume growth of ~6-7% YoY volume growth in 3Q. We assume better volume growth in DALBHARA (6.5% YoY and 8% QoQ) mainly led by strong regional presence in eastern and southern market.
Our View: Despite a price hike in Dec’24, we don’t see any big improvement in realization in 3Q followed by Oct-Nov’24 price weakness, Also, the primary concern is the RD (rate difference), the avg. rate difference is higher at Rs35-45/bag which would ideally go to the dealer and distributor from the company pockets. Similarly, we don’t see any significant spike in volume in 3Q due to no major progress in government capex program post-election and budget announcement. So, the recent price hike is meaningless as per our view. We don’t see any significant movement in government capex until 1Q/2Q FY26E due to regional, seasonal and liquidity issues in some specific states (i.e., eastern, and southern regions). While private capex to fill the gap to some extent till then. We are neutral to negative for sector for FY25E and may change our view in 2QFY26E.
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