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Our channel checks suggest that pan-India average cement prices increased to Rs393/bag (+Rs14/bag MoM) in Oct-23. An uptick was witnessed across all regions (except the East and central India), with prices increasing by Rs15- 30/bag. The South accounted for a larger part of the hike, with prices in TN increasing by Rs35-40/bag. Our channel checks indicate that demand in Oct-23 may have grown in the high-teens YoY (at a high single-digit MoM), mainly owing to the low base effect and a late Diwali this year (vs in Oct-22 last year). Accordingly, the Oct-Nov-23 combined volume growth will provide a better picture, in our view. Companies are likely to announce price hikes of Rs10- 15/bag across regions, for Nov-23. Absorption of such hikes will be limited as we believe that the announcement is mainly to support current price levels. Sustenance of price hikes post the festive season will be a key monitorable. Our top-picks: UltraTech Cement, Ambuja Cement.

Price hikes seen across all regions, except the East and Central India, in Oct23

Average cement prices increased 4-5% MoM (by Rs14/bag) in Oct-23. The upsurge was driven by South, where the average price hike was Rs40 a bag. Our channel checks suggest that prices have increased by Rs35-40/bag in Tamil Nadu, and by Rs15-25/bag in other southern states, in Oct-23. To recall, prices in Tamil Nadu had fallen more than Rs40-45/bag in H1FY24. In the North and West, prices firmed up by Rs12-15/bag. No major price hike was taken in the eastern or central regions. East had already seen a sharp price increase of Rs45-50/bag, earlier in Sep-23; prices have sustained since then. Pan-India cement prices are likely to have risen by Rs20-25/bag since Aug-23.

Demand momentum continued in YTD-FY24; FY24 to be another strong year

Underlying cement demand has stayed healthy in YTDFY24 owing to boost in infra spending and the upcoming general elections. In H1FY24, cement dispatches grew in the low-teens YoY. Our channel checks indicate that demand in Oct-23 may have grown in high-teens YoY (high single-digit MoM), mainly owing to the low base effect and a late Diwali this year (vs in Oct-22 last year). Accordingly, the Oct-Nov-23 combined volume growth would provide a better picture, in our view. It is likely that FY24 would be penned as the third consecutive year of strong demand with double-digit volume growth.

Fuel prices remain broadly stable on MoM basis, in Oct23

US petcoke prices in Oct-23 remained stable on MoM basis, at USD130/ton (declined 32% YoY), whereas domestic pet coke prices for Nov-23 have enhanced at ~6% MoM (declined 23% YoY). During Q2FY24, cement players witnessed cost savings to the tune of Rs80-100/ton, owing to lower fuel costs. The upcoming quarters are likely to witness twin benefits—stable input prices, recent price hikes and benefits of operating leverage.

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