Cement prices stay firm in May despite pandemic

ET Intelligence Group: The trend in cement prices has remained resilient despite demand disruption amid local lockdown in various parts of the country. This is because the cement makers continue to prioritise pricing over volume gain. All India average cement price improved by 1.1% sequentially in May to Rs 356 per 50 kg bag. Compared with the year-ago level, it was a tad lower by1.3%.

Analysts are bullish on cement companies following firm prices and a gradual relaxation in lockdown across states. They believe the strategy of focusing on prices instead of volume improvement will pay off in terms of stable or better operating margins before depreciation, and amortization (EBIDTA margins).

An analyst who wished to be unnamed said, “A key reason why earnings of cement companies have been upgraded in recent times is their intention to protect the pricing.” He added that there will be some improvement in margins in the second half of FY22 but it would not be material enough to offset rising raw material costs. “In FY23, we estimate 2-3% improvement in margins,” he said. Large cement companies operate at EBIDTA margins of 13-27%.

As lockdown restrictions are lifted gradually, the demand from construction activities in infrastructure, rural and urban housing segments will boost the topline and profits of cement makers.