Cement prices fall further; Q2 margins down sharply: IIFL Securities

IIFL Securities broker checks provided the following information:

The average cement price across India is down Rs 6 per 50kg bag or 1.9% MoM in August 2022. This is after prices fell 2.5% MoM in July 2022. Consequently, Q2 FY23 (QTD) prices are down Rs23/bag or 6.4% QoQ (so far). Historically, the average price was down 4-7% QoQ in Q2; however, given the cost pressures this time around, the lower prices reflect growing competitive intensity.


· Prices fell in all regions except the South, ranging from 1% to 5%. A higher price reduction was observed in the Eastern regions (4.5%), followed by the West and North (about 2%) and the Center (1%). Prices in South India were stable MoM.


· Dealers shared that prices in the East and South rose 4% and 5%, respectively, in the first week of September. However, the same situation is unlikely to continue as overall demand is not as strong.


· Also, based on dealer feedback, demand in the North and West has been relatively weaker compared to other regions. Progression of southwest monsoons, festive holidays and sand shortages in some states (Punjab and West Bengal). Going forward, dealers expect volumes to improve – from late September/October – as the monsoon recedes. Improving demand could also allow companies to raise prices from the third quarter.


· Although domestic petroleum coke prices are down 30% from the end of June, earnings would largely flow in the third quarter; as usual, companies have fuel stocks ranging from 30 to 60 days. Thus, EBITDA per tonne is expected to experience a significant decline in Q2 (current estimates of Rs200/t or ~20% of industry EBITDA/t) given lower prices and leverage. operating negative (volumes are expected to decline quarter over quarter).

However, fuel prices are correcting and cement volumes and prices should improve from the third quarter; The second quarter is expected to be a low quarter as industry profitability improves in the second half.

Summary of cement prices

Source: Industry, IIFL Research