Ratings agency CLSA says that it has identified mixed trends as per channel checks, but says that demonetisation still haunts the industry.
Private capex may languish, says CLSA, but the industry is quite hopeful on the government’s infra push. In particular, the industry is excited about affordable housing and most players have done their math on the potential upside from this. Cement prices are highly volatile but seem to be on an uptrend recently in all regions except south India where there is some correction. However, there are instances of increased trade discounts reversing some of the hikes.
Overall, CLSA sees 2017 as a volatile year for pricing and demand is unlikely to see a big uptick. Despite strong long-term opportunity, the agency sees no urgency to chase cement stocks and retains a negative view on the sector.
The report also says that demonetisation continues to haunt several regions.
* Channel checks indicate that demonetisation continues to haunt the industry as demand trends in several markets continue to be under pressure.
* There are still some dealers witnessing double-digit declines in volumes although others indicate that, sequentially, there is improvement.
* Feedback also indicates liquidity is still an issue that has been hampering cement consumption and creating challenges.
* The builder focus seems to be on completing existing projects, and new launches may take time, which further adds to concerns.
* There are high hopes on government spending, and some efforts are visible.
* In general, dealers (and players) are hopeful of a pick-up ahead as government-led infrastructure projects kick off.
* Hopes are running high on the government’s ‘Housing for all’ scheme with certain states (Telangana, for example) even making progress.
* Feedback is very strong for the Andhra Pradesh and Telangana markets where after over five years of challenges, cement demand is witnessing growth.
* Private capex, however, may time to revive and hence, the government’s role would be critical to drive growth in the industry.
Cement pricing is also showing mixed trends, says CLSA.
* Cement prices in north and central India, which corrected post demonetisation, are on a rise with levels almost back to around pre-demonetisation. Channels indicate that further price hikes are likely due to seasonality and producer discipline.
* The western India markets, particularly Gujarat, which saw severe pressures in the past six months, are also seeing stabilisation and, in fact, prices have risen 7-13 per cent.
However, prices have been quite volatile in these three regions with rounds of price hikes and reversals but in the last fortnight, pricing is on the uptrend.
Eastern India continues to suffer from a demand-supply imbalance as capacities that are still ramping up have been exerting pressures. While prices have been rising, there are instances of widening of discounts impacting effective cement prices, notwithstanding the uptrend.
After an almost stable trend for two years, south India too is seeing a declining trend with cement prices down nearly 7-8 per cent in the past three-four months.
CLSA remains negative on the sector, saying that 2017 will be a lacklustre year for the industry as demand is unlikely to see a pick up; prices will also remain volatile at a time when input costs are firming up.