Inability to raise prices to limit cement companies’ gains in June quarter, ET RealEstate

July 13, 2023

Cement makers in India are expected to report limited benefits from the strong demand and lower input costs in the June quarter as they were unable to raise prices amid heightened competition.

Demand for cement, boosted by spending for infrastructure in a pre-election year and a delay in the onset of monsoon, is estimated to have grown more than 15% year-on-year in the April-June period. Market leader UltraTech Cement has already reported a 20% growth in sales volume for the quarter.

While the March quarter is the strongest for cement makers, onset of monsoon rains in the June quarter generally leads to a quarter-on-quarter fall in volume and pricing. This year, though, the sequential fall in volume is estimated to be 2-4% as against a 7-10% fall that is generally the trend, analysts said.

Fuel costs, which account for 22-25% of operating costs for cement firms, are significantly down from a year ago and cement companies are seen benefiting from this with a lag.

For the June quarter, the fuel costs of cement producers are likely to be ₹60 -100 lower per tonne as compared to the previous quarter, analysts said.

However, both these factors could not shore up profitability of cement companies as they were unable to sustain the price hikes taken in April and May till the end of the quarter, especially in the southern markets.

The average realisation for cement markets is expected to have remained flat on a sequential basis, and fallen 3-5% year-on-year. As a result, the average operating profit made on each tonne of cement sold, too, is seen flat as compared to the previous quarter, and lower on a year-on-year basis.

While both robust demand and benefits of lower fuel costs are expected to continue for another quarter or two, analysts are sceptical of whether this can translate into an improvement in profitability for companies.

“Historically, both robust demand as well as plunging fuel cost have triggered competitive intensity,” brokerage ICICI Securities said. “Given the display of weak pricing power, we see no reason for a different outcome this time as well.”

  • Published On Jul 13, 2023 at 05:00 PM IST

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