Cement firms begin Q1FY24 with big bang price hike announcement
1 min read . Updated: 03 Apr 2023, 10:37 AM IST
Premium- Thanks to government spending on infrastructure and related activities ahead of the elections, the sector's near-term volume growth outlook is likely to remain in good stead. What this also means is that, cement price hikes are likely to get absorbed by the market aided by decent demand.
There is some good news for investors in cement stocks, who have been awaiting price hikes.
According to dealers channel check by Jefferies India Pvt Ltd, cement companies have announced price hikes of up to Rs50/bag for April, with an average hike of Rs15-20/bag. One cement bag weighs 50 kilograms.
In Q4FY23, the push for volumes growth, took a toll on cement prices. Consequently, the Q4FY23 earnings performance of cement manufacturers is expected to be lackluster, at least, as far as realisation growth is concerned.
But thanks to government spending on infrastructure and related activities ahead of the elections, the sector's near-term volume growth outlook is likely to remain in good stead. What this also means is that, cement price hikes are likely to get absorbed by the market aided by decent demand.
"Based on dealer feedback, we expect strong despatches for companies in March 2023 and full year is likely to end above 10% growth. With pre-election spending likely to remain strong in FY24, we are building continued strong growth at 9% for FY24," said the Jefferies report dated 2 April.
Another positive for the sector is softening input cost pressure. Prices of key fuels--petroleum coke and coal--have moderated from their recent peaks. This bodes well for operating margin recovery.
"International coal and petcoke price continued to decline for Mar-23, increasing confidence on quater-on-quarter (QoQ) cost drop continuing into H1FY24 after a moderation expected in Q4FY23," said the Jefferies report.
It added that while the exit price is lower than the average for Q4FY23, the price hike announcements made for April could reverse the fall and with costs declining, QoQ/YoY increase in Ebitda/tonne is likely for Q1FY24. Ebitda is earnings before interest, tax, depreciation and amortization.
The announcement of price hikes is a sentimentally positive for cement stocks, but sustainance is key. For now, a meaningful earnings upgrade depends on the pace of margin revival.