Another price hike attempt expected from cement companies in April 2023

What's Buzzing 

As per channel checks and feedback, cement companies are likely to announce a Rs 10-30/bag price hike in April 2023. Companies in mid-February had attempted a price hike of Rs 10-15/bag. However, the same was fully rolled back in March through higher discounting. For Q4FY23, cement prices are expected to remain flattish on a QoQ basis. 

Context 

Cement prices, at a pan-India level are expected to remain flattish QoQ at ~ Rs 370/bag (up ~2% YoY). Region specific, prices in north & central are expected to be higher by 2% and 1%, respectively (on a QoQ basis), whereas southern players are likely to witness a decline of 3% QoQ in Q4FY23. Recent attempt at price hikes (~Rs 10-15 per bag) were rolled back as players were targeting volume growth. With fuel cost witnessing a declining trend, we expect majority of the benefit to flow from Q1FY24E onwards (as companies have average inventory of three months). Imported pet coke price, on an average, has declined ~5% QoQ to US$165/t whereas domestic coal prices (Reliance Industries ex-Jamnagar) are down ~4%. Decline in international coal prices (South African) has seen a steeper curve declining 35% QoQ to US $ 140/t. On an average, fuel cost per Kcal is expected to come down from Rs 2.4-2.5/kcal to Rs 2.1/Kcal over the next two quarters (provided the spot prices remain at current levels). 

Our Perspective 

Underlying cement demand is expected to remain healthy in the medium term (8-9% growth) owing to a boost in government spending on infra projects and upcoming general elections in 2024. Commentary from most companies remains buoyant with capacities operating at 85%+ utilisation levels in Q4FY23. While cost tailwinds would entail positive profitability momentum (~Rs 200-250/t delta in EBITDA/T), acceptance of the latest price hike attempt would further provide thrust to the profitability (~Rs 150-200/t) in FY24E. We prefer UltraTech Cement among pan India player. We believe Sagar Cement is an attractive regional play in the southern cement markets and has demonstrated the ability to be one of the lowest cost producers.