Cement: Demand Improves, But Pricing Remains Muted

Motilal Oswal Institutional Equities in its latest report has said that cement demand has improved, but, pricing remains muted.

"Our channel checks indicate the seasonal uptick in demand is playing out, with volumes bouncing back strongly from the weakness seen in the first few weeks of Jan. While prices have improved 1-2% MoM in North and West, average pan-India price is down 2% QoQ thus far in 4QFY21 (+1% YoY). Cost inflation is also a concern in the near term as petcoke, coal, and diesel prices are up 71%, 4%, and 26% YoY, respectively. Therefore, we expect margins to decline sequentially for the industry, but they should still be higher YoY. We expect our coverage EBITDA to grow >20% YoY in 4QFY21, driven by ~18% YoY growth in volumes," the Motilal Oswal Institutional Equities report states.

For the North and Central markets, the firm has noted that strong demand is supporting price hikes.

"In North and Central, demand has picked up, led by a receding winter and the end of the harvest season, enabling workers to return to construction sites. Prices in North are up 2% MoM (flat YoY) to Rs 378/bag, led by an Rs 5-10/bag hike across the region, supported by high plant utilization (>90%). Prices in Central, however, have been flat MoM at Rs 349/bag (up 3% YoY)," the firm has noted.

In the west, Motilal Oswal Institutional Equities has noted that demand has rebounded strongly, led by recovery in urban real estate and construction. Maharashtra volumes are now growing for the first time since the pandemic. Demand in Gujarat has also been strong at 5-10% YoY.

"In February, price is up +1% MoM / +3% YoY to INR345/bag in Mumbai, and up +1% MoM / +3% YoY to INR355/bag in Ahmedabad. Price in West, on average, is up 1% MoM to Rs 350/bag (+3% YoY)," the firm has noted.