Edelweiss: Cement Monthly

Price outlook for June: Flat prices expected across regions besides the South Price outlook for June remains neutral with prices expected to remain flat across regions. Marginal price hike, if any, of ~INR 2/bag is expected in Andhra Pradesh (AP).

Industry operational snapshot: Healthy Y-o-Y demand growth of ~8.6% Industry utilisation levels fell to ~92% in April, against ~104% in March on account of capacity addition of ~7 mtpa during the month.

Region-wise snapshot

South: Y-o-Y demand growth in April continued to be strong at 11.7%. Andhra Pradesh (AP) reported Y-o-Y growth of 24% and Tamil Nadu (TN) Y-o-Y growth of 10.5%. Inventory levels remain low at around two days across the region. Demand remained robust on account of increased demand from irrigation, infrastructure, and government housing projects. There was a price increase of ~INR 2-3/bag in Karnataka and TN in May, primarily to pass on the increase in excise duty. Current prices are ~INR 255-260/bag in Chennai and ~INR 225-228/bag in Hyderabad.

North: Y-o-Y demand growth in April, at 8.7%, was satisfactory. The region witnessed demand from the Commonwealth Games and infrastructure projects. While demand remained healthy in May, there were supply constraints due to violence in the region since last ~10 days. Prices have remained flat in May; however, discounts of INR 2-3/bag have been offered in certain parts of the region. Inventory levels are at around two-three days. Current prices are ~INR 216-220/bag in Jaipur and ~INR 238-242/bag in Delhi.

East: Robust 9.6% Y-o-Y demand growth in April due to increased demand from the existing industrial and infrastructure projects in Orissa. West Bengal saw increase in demand from housing projects in addition to industrial demand. Inventory levels are at around four-five days. Prices have increased by ~INR 3-5/bag in May. Current prices are ~INR 238-245/bag in Kolkata and ~INR 235-240/bag in Bhubaneshwar.

West: Sluggish Y-o-Y demand growth, at 4.2%, in April mainly due to Gujarat showing a 7% Y-o-Y decline in growth. Maharashtra showed subdued 9.5% Y-o-Y growth due to a comparatively higher base in the previous year. Prices have corrected by ~INR 3-5/bag in Gujarat. In certain parts of Maharashtra, dealers are offering discounts of ~INR 2-5/bag. Inventory levels are at around five to six days across the region. Current prices stand at ~INR 224-228/bag in Ahmedabad and ~INR 273-276/bag in Mumbai.

Post a series of negative interventions, the government announced the following measures, which came as a breather to the sector:

Lift of ban on exports to Nepal: India exports ~0.9 mtpa (cement and clinker) to Nepal, which is ~15% of the total exports from the country.

Allowing exports through Gujarat ports: Around 85% of India’s exports (cement and clinker) are via Gujarat.

Nepal forms a small portion of total exports and lifting the ban on exports to the country was only a directionally positive move. However, allowing exports via Gujarat is positive for the companies operating in the region as prices reduced by ~INR 3-5/bag in the month of May due to surplus build up.

We believe that removal of export restrictions will at best hold prices at current levels and not lead to price hikes (Impending monsoons, impact of new capacities addition thereafter, and government intervention will make price increases difficult).

Other developments that can impact prices are: Increase in diesel prices: If the government decides to increase diesel prices, then the increased cost burden is likely to be passed on to the consumer. However, that would only be a cost push and would not be margin accretive.

Excise duty abatement: Any excise duty abatement is likely to lead to price correction, to pass on the duty reduction benefit to the consumers.

With the onset of monsoons, we remain negative on the pricing power of the companies and continue to maintain our negative stance on the sector. Also, exports during the monsoons will become difficult.