Outlook may remain weak for 3-4 quarters
Outlook may remain weak for 3-4 quarters

Outlook may remain weak for 3-4 quarters

Prices across markets and regions have fallen between Rs 10 and Rs 30 a 50-kg bag, compared to November, with northern India seeing the biggest decline.
At the current price of Rs 180-200 a bag, the larger companies´ ratio of operating earnings a tonne are low and the smaller ones are making losses. The current trends in cement demand and prices across a majority of markets in the country remain weak. In fact, things could remain subdued for quite some time.

´Our discussions with dealers across cities suggest continued weakness in demand still persists due to subdued government investment, poor housing demand and a weak monsoon hurting rural demand,´ said Mihir Jhaveri and Siddharth Vora of Religare Institutional Research. Consequently, prices across markets and regions have fallen between Rs 10 and Rs 30 a 50-kg bag, compared to November, with northern India seeing the biggest decline. Weak demand from Punjab and Haryana agri markets and subdued construction activity are key reasons.

Excess supply in Rajasthan have, in fact, forced players to push sales in the nearby western market of Gujarat. While east India has also seen higher price declines, the southern markets have seen the least, as no new entities have entered the fray and disrupted the factors in recent months.

The reason for South India prices declining by a lesser margin is the better pricing discipline among producers. Since most of them are laden with debt, the companies seem to realise the need to maintain pricing discipline. However, ´prices in north India have been fairly volatile. They were cut sharply during April-July, followed by steep hikes over August-September and cut again during November-December, to previous lows,´ said Nitin Bhasin and Achint Bhagat, analysts at Ambit Capital, in a recent note.

There is also another story waiting to unfold, which could have a significant bearing on demand. ´The impact of crackdown in organised residential real estate construction in the urban cities is yet to hit the bottom, since multiple projects are still under implementation. High unsold inventory, stagnating land prices and low liquidity due to a clamp on black money will curtail future investments by developers in organised real estate, which could affect demand growth after completion of the under-construction projects,´ the analysts said.

For investors, the advice from Ambit´s analysts is: ´Cement is indeed a credible play on infrastructure recovery in India but as the magnitude of demand recovery is uncertain, we opine that investors should be averse to paying expensive valuations for hopeful growth.´

While the consensus is bullish on cement stocks, the smaller ones could see a higher upside, going by target prices of analysts polled by Bloomberg. For the bigger ones, the upside is mostly seen in single digits. But, if indeed the demand recovery takes a longer time to pick up, share prices of cement companies could see pressure, as they have outperformed the S&P BSE Sensex by a good margin in the past one year.

Source: Business Standard

The demand environment continued to remain dismal mainly due to absence of pickup in private investment cycle, labour and water issues in many pockets, negligible pickup in real estate activities, and delay in regulatory clearances across the country, according to Binod Modi, Analyst, Reliance Securities Research. Average cement prices declined sharply by 7.3 per cent in December 2015, compared to the same month in the previous year. The cement price currently ruling Rs 285-290 per bag, compared to an average price of Rs 308 per bag in December 2014, the report by Reliance Securities said.

Prices in the western region corrected significantly by 7 per cent month-on-month basis, as most pockets have witnessed a severe correction owing to low activity and volume push, it said Notably, prices remained resilient in the southern markets barring Andhra Pradesh and Telangana, despite poor construction activities. The region has witnessed marginal 1.4 per cent jump in prices from Rs 345/bag in December 2014 to Rs 350/bag in December 2015, the report adds.

Source: Economics times

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