Cement sector sees cracks in May; analyst see demand recovery in Monsoon

New Delhi: Cement stocks have taken a hit lately, following the falling demand and prices for the sector. According to various brokerage reports, the demand for the cement has softened and the rising input cost is adding pressure.

Global brokerage Jefferies said the prices of cement dropped 3 per cent on a month-on-month (MoM) basis or Rs 11 per bag in May 2022, throughout the country.

The brokerage firm noted that the risk of downgrades in earnings estimates has resurfaced. “Multiple markets declined due to weak demand and the smallest decline was seen in the western region and the largest in the central region,” it said.

A report by Investec suggested that prices declined in May across all the regions of the country, with a fall of up to Rs 35 per bag on a monthly basis. Cement firms sought a price hike in early May but rolled it back due to muted demand.

“Prices of Cement bags declined the most, by Rs 23 per bag, in the Southern region, followed by Rs 18 in the Central region,” the report said. “Prices in eastern, northern and western markets registered a fall of Rs 17, Rs 15 and Rs 6, respectively.”

The rising price of coal and inflation is denting the margins of cement companies. The shortage of labour in summer is adding to the woes of the cement sector.

Costs continued to climb relentlessly, said in its report. “Petcoke prices have inched up and are likely to impact margins in 1QFY23. Coal prices have increased materially.”

The volumes transported through railway freight indicate a minor improvement in demand on MoM basis. In comparison to last year, transported volumes in May 2022 reported strong growth of 30 per cent YoY, owing to a low base, it added.

However, dealers are optimistic of another round of price hike in the next one to two weeks. They are hoping for a revival in demand as the monsoon inches closer and mercury to ease down across the nation.

Industry participants remain optimistic about the demand improvement in June 22 owing to a recent fall in steel prices and a likely pick-up in pre-monsoon construction activities, said Emkay Global in its report.

Companies have announced a price hike of Rs 15-20 per bag for the current month, although absorption of the hike is likely to be difficult. “We believe the price hike was announced mainly to sustain current prices.”

Emkay Global has picked

and in large-caps, Birla Corp in mid-caps and Sagar Cement in small-caps from the sector.

JM Financial has a buy call on

, Shree Cement, , , , , Sagar Cement and across the space.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

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