As cement prices rise across the country, driven more by the manufacturers’ need to stop losses, analysts are skeptical if these prices would sustain since supply is outstripping demand.
As cement prices rise across the country, driven more by the manufacturers’ need to stop losses, analysts are skeptical if these prices would sustain since supply is outstripping demand.
An analyst tracking the sector said, “The increase in prices in not mainly demand driven, it is an indication by the companies that they don’t want to make losses. This strategy has been tried 10 years back in 2001 and they are doing it again. Though for the second quarter we see some south-based companies posting losses.”
A report by J Radhakrishnan of IIFL, said, “Our interactions with cement dealers indicate that demand from the infrastructure segment continues to be sluggish across regions. Dealers also fear a slowdown from the urban housing segment, given the sharp increase in real estate rates in the past few months.”
Though prices have seen an increase of `70 per 50 kg bag in the South and an average Rs15-25 across all markets, a few analysts say that if prices sustain the books of cement companies would be better off.
An analyst said, “Buyers are sitting at the fence. Also, our interaction with dealers indicate that cement manufacturers are holding supplies. Though cement stocks have run up in the wake of price hikes, investors should book profit and exit as this is not a long-term story to depend upon.”
Mihir Jhaveri and Suhas Harinarayanan of Religare Securities wrote to their clients, “While it is too early to factor in the current upswing in cement prices, if these rates were to sustain for the next 1-2 months, we could see a strong rebound in margins and earnings in the coming quarters.”
Though September cement dispatch numbers show a growth of 5-7% yoy, analysts expect dud-quarter results.
The Religare analysts wrote, “The second quarter of the current fiscal is likely to be the worst quarter in terms of operational performance, with midcaps like India Cements and JK Lakshmi Cement descending into losses. Overall, Ebitda/tonne for our universe is likely to decline sharply to Rs100-700/tonne from Rs400-1,200/tonne in the first quarter of fiscal 2011.”
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