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Our channel checks suggest that pan-India average cement prices witnessed a ~3% dip in Dec-23 on account of weak demand due to elections in selected states, rains in the Southern region, and cold weather in certain parts of India. Prices dipped Rs10/bag to Rs379/bag in Dec-23. However, it is important to note that average prices in Q3 are up 2.5-3% QoQ, while exit prices are broadly similar to Sep-23 levels. Demand trends indicate volumes have broadly remained flat or declined to low single digits YoY in Dec-23 (up in high single digit MoM). Our checks suggest the industry may attempt a price hike (Rs10- 30/bag) in Jan-24, and absorption will be known over the next few days. With better realization, higher operating leverage and partial relief in input cost, we expect profitability to improve by >Rs150/ton sequentially in Q3FY24. Our top picks are UltraTech Cement and Ambuja Cement.

Prices dip ~3% in Dec-23; still 2.5-3% higher sequentially in Q3FY24

Average cement prices declined ~3% MoM (by Rs10/bag) in Dec-23. The drop was across regions with the East witnessing a decline of Rs10-15/bag, Rs5/bag in the West, and Rs8-10/bag in other regions. Despite the decline in prices in the past couple of months, pan-Indian average cement prices are still up 2.5-3% (Rs10-12/bag) sequentially in Q3FY24. However, exit prices are broadly similar to Sep-23 levels. Our checks suggest that the industry may attempt a price hike (Rs10-30/bag) in Jan-24; however, absorption will be known over the next few days.

Demand momentum slows down in Dec-23

Volumes are likely to remain flat or decline in low single digits YoY/up in high single digit MoM in Dec-23. Elections in Rajasthan, and cold weather have impacted demand in the North; state elections in Telangana and heavy rains in Tamil Nadu have kept demand lower in the South, while weak rural demand, especially in Bihar and Jharkhand markets, is impacting demand in the East. Increased dispatches from the Adani Group from the recently acquired Sanghi Industries will be the key monitorable in the West region over the next few months. We estimate industry demand has likely grown in mid to high single digits YoY in Q3FY24; while it is likely to have improved by 10-11% YoY in 9MFY24. With Q4 being seasonally the strongest quarter, we expect demand momentum to improve in the coming months.

Fuel prices declined 7-8% MoM in Dec-23

US petcoke prices in Dec-23 declined 7-8% MoM to USD120/ton (down 30% YoY) owing to a downturn in the coal market and lower demand, led by Christmas holidays. Spot fuel prices are 5-6% lower than average prices in Q3FY24. With better realization, higher operating leverage and partial relief in input cost, we expect profitability to improve by >Rs150/ton QoQ in Q3FY24.

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