Sector Update | 3 June 2019
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Price hikes across regions
Is consolidation finally reflecting in pricing power or is it transient?
Refer our report dated
15 March 2019
Across India, cement players hiked prices by INR20/bag in Apr’19; followed by another
hike of INR10-30/bag in May’19, which was partly rolled back towards end-May.
Pan-India, current prices are INR25/bag higher than the average prices witnessed in
4QFY19. Prices have increased (v/s 4QFY19 average prices) by INR40/bag in the North,
INR6/bag in the South, INR37/bag in Central India, INR23/bag in the East, and by
INR26/bag in the West. Further, we have observed that the price hikes are more
prominent in markets (the North and Central India) that have seen substantial
consolidation in the last few years.
We are currently factoring in INR7-8/bag increase in realization for FY20/21. Should
the current price hikes sustain, it will lead to an earnings upgrade of over 25% for
large-cap companies and over 50% upgrade for mid-cap companies (given higher
sensitivity to realization). Also, valuations seem almost in line with LPA for large-cap
companies and at substantial discount for others.
On the cost front, prices of imported coal have reduced by 20% from 4QFY19 average.
Diesel prices have increased by 1% over 4QFY19 average following the rally in crude
prices. However, crude price decline in the last week of May should bode well for the
cost curve of companies, in case prices sustain.
Post industry consolidation of the last few years, we believe the cement industry is
now on the verge of growth. This in turn should lead to higher prices, enabling
significant upgrade in our earnings estimate. Also, demand uptick in 2HFY20 will be
critical for sustainability of prices and for upgrades to take place.
Current all-India cement prices
are higher by INR25/bag as
compared to 4QFY19 average
Substantial price hikes across regions since Mar’19...
While prices in the East and the West increased by INR14-18/bag in Apr’19,
prices in the North and Central India rose by INR30-35/bag and were sustainable
to a great extent. Dealers across regions indicated that April and May witnessed
slowdown in demand due to elections.
Prices in the South increased 4% QoQ in 4QFY19 led by significant price hikes in
Feb’19 and partial rollback in Mar’19. In Apr’19, frequent attempts at hiking
prices failed in the South, with prices increasing a moderate 1% MoM and
companies even offering discounts.
Additionally, May’19 also saw significant price hikes — of about INR10/bag in
the North and INR4-6/bag in the East, West and Central India. But, the South
witnessed a price decline of INR3/bag in May’19.
Effectively, all-India prices have increased by INR25/bag from 4QFY19 levels,
with an increase of INR40/bag in the North, INR6/bag in the South, INR37/bag in
Central India, INR23/bag in the East and INR26/bag in the West.
…with maximum hike in markets that saw substantial consolidation
Maximum level of consolidation was witnessed in Central India – currently share
of the top-5 players has increased to 84% from 72% in FY15. Much of this can be
attributed to UTCEM’s acquisition of JPA and Century Textiles’ cement assets.
The North has also seen considerable consolidation with the top-5 players
accounting for 74% (66% in FY15) market share currently. Consolidation in the
Source: MOFSL, Company
Pradnya Ganar – Research analyst
(Pradnya.Ganar@motilaloswal.com); +91 22 7193 4322
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
8 August 2016
are advised to refer through important disclosures made at the last page of the Research Report.