Sector Update | 18 February 2020
Price hikes continue; 4QFY20 outlook strong
Further price hikes initiated in Feb, after sharp hikes of Jan
All-India prices up 6% YoY in
We expect cement sector margins to be strong in 4QFY20 as price hikes have resumed
in CY20 (after trending down in 2HCY19) and costs have been declining.
According to our channel checks, prices have continued increasing in CY20, led by
hikes in south in Feb’20. All-India cement prices are up ~4% QoQ (+6% YoY) so far this
Regionally, on a sequential basis, prices are up ~6% in east, 5% in north, 4% in central,
3% in west, and 1% in south (led by sharp hikes in Andhra Pradesh and Telangana).
Moreover, after falling in 3QFY20, costs are likely to decline further this quarter, led by
lower energy costs and operating leverage benefits from seasonally higher volumes.
We reiterate our preference for companies with higher exposure to north and central
India. UltraTech is our top large-cap and JK Cement our top mid-cap pick. We also like
ACC as a value pick.
South – another attempt to raise prices
Please find links to our earlier
Cement industry in south has attempted a sharp price hike again in Andhra
Pradesh and Telangana (AP&T), with prices being raised by INR60-70/bag (25-
30%) in Feb’20. A dispatch holiday was also taken in the first week of Feb’20 to
support the hike.
Prices in AP&T have been very weak in 2HCY19 (down by ~30% to INR90/bag)
due to weak demand. Industry has been trying to raise prices nearly every
month over the past 4-5 months but has not been successful.
South was the only region in India to not see a price hike in Jan’20. In fact, prices
were down 2% MoM in the month due to lower prices in Kerala. Prices have
been raised by 7% MoM in Feb’20, driving up all-India average price growth.
Prices in south, however, are down by 5% YoY on account of a high base (Feb’19
had witnessed price hike of INR60/bag in south). On a sequential basis, prices
are up 1% QoQ in the region.
North and central India continue to shine; prices up 13-16%
Prices in north increased marginally in Feb’20 (in Punjab and Rajasthan) after
INR15/bag hike in Jan. Prices are up 5% QoQ and 16% YoY. While the region has
seen capacity addition by JK Cement, this is expected to ramp up gradually and
not disturb the market balance given >80% utilization.
Prices in central India increased by INR5/bag in Feb’20 after an INR10/bag hike
in Jan, and are currently up 4% QoQ (and 13% YoY). Non-trade prices in the
region also increased by INR25/bag in Jan.
Amit Murarka - Research analyst
(Amit.Murarka@motilaloswal.com) +91 22 7199 2309
Pradnya Ganar - Research analyst
(Pradnya.Ganar@motilaloswal.com); +91 22 6129 1537
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
advised to refer through important disclosures made at the last page of the Research Report.