Building materials: cement; Strong demand yields good results

Dealer interactions in May 2023 indicate strong demand for cement, coupled with stable prices and declining costs. Here are the key takeaways: The average cement prices across India remained largely stable on a m-o-m basis in May. In Q1, prices experienced a slight decline of approximately 1% q-o-q. However, overall, prices have remained steady. The demand for cement is expected to witness y-o-y growth in the teens for May, surpassing initial estimates. The infrastructure sector has shown particularly strong traction, while the individual home-building (IHB) segment has experienced a slightly sluggish growth rate.

The cement industry has made regular attempts to increase prices at the beginning of each month in select markets during June. Considering the robust demand, our estimates indicate potential upside risks. However, it is important to note that if cement prices do not sharply decline during the monsoon season, this would further enhance the positive outlook for the industry.

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North: Cement prices were stable in the northern region after a dip seen in the previous month.

West: Prices were marginally up in western region for May’23 with `5 per bag increase in Mumbai.

Central: Cement prices were stable in the central region. Central govt projects are seeing good traction in UP as per dealers.

East: Prices were stable for May’23 in east as well. Dealers in Patna said that every month there is a price increase announcement, but it is not getting implemented.

South: Prices in the southern region were down marginally for May’23 due to reduction in AP/Telangana markets.

Cost trend: While Coal India has increased prices of linkage coal by 8% recently, the impact of the same for cement companies is likely to be minimal given the sharply reduced dependence on the same for the industry at 10% and multiple companies not having any exposure to domestic linkage coal.

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Price estimate: While cement prices have not increased in the past 2 months and is against the general trend of increase in Q1, there is a significant profit tailwind from steep energy cost decline. We believe our earnings estimates across companies have upside risk if there is sharp fall in cement prices during monsoon.