Never miss a great news story!
Get instant notifications from Economic Times
AllowNot now


You can switch off notifications anytime using browser settings.
ET Markets
11,346.20-73.05
Stock Analysis, IPO, Mutual Funds, Bonds & More

Cement price hikes fail to sustain, analysts stay cautious

Cement prices in June 2019 have corrected by 2 per cent or Rs 7 per kg.

, ET Bureau|
Jun 19, 2019, 08.20 AM IST
0Comments
Getty Images
Cement-1---Getty
Analysts believe that steep increases in cement prices are not sustainable and there could be a decline once the demand from non-trade segment improves.
Brokerages remain cautious on the cement sector as price increases that began in April have failed to sustain.

Sluggish demand and the onset of monsoons suggest price moderation should continue and margins could peak near term in the June quarter.

Cement prices in June 2019 have corrected by 2 per cent or Rs 7 per kg, reversing the increase in May.

While Ambuja Cement and ACC declined 5 per cent each in the past month, UltraTech gained just a percent. The other two cement majors such as Shree Cement and Grasim gained 5 per cent and 6 per cent, respectively.

“We see June quarter cement prices and margins at near-term peak and expect price moderation to continue,” said Sumangal Nevatia, analyst, Kotak Securities. “We believe large capacity addition will keep industry utilisations low over the next two years and will restrict sustainable improvement in margins.”

Companies such as ACC, Ambuja Cement and Grasim are currently trading 12 times their FY20 estimated EV/EBITDA. Shree Cement and UltraTech Cement are trading at 16 times. “We maintain a cautious stance on the cement sector on expensive valuations of large-cap cement names at 12-16 times FY21 estimated EV/EBITDA,” said Nevatia.

Analysts believe that steep increases in cement prices are not sustainable and there could be a decline once the demand from non-trade segment improves.

Cement snip 1

“Although cement prices have not seen much of a correction in North, demand has taken a knock and this remains a cause for concern,” said Sanjeev Kumar Singh, analyst, Emkay. “Most (dealers) expect some decline in cement prices going forward and some of them believe average price increase in FY20 should be limited to 3-4 per cent year-on-year”.

Sales volumes for the industry has seen a steep decline after March 2019.

In April the decline was 3.2 per cent yearon-year and 14.9 in May. Volumes for June are expected to fall by14-17 per cent year-on-year. This seems to be driven by higher spending during the pre-election period, unavailability of labour and surging temperatures. Industry experts, however, believe that the liquidity crunch has had a greater impact in causing demand to soften.
0Comments
Comments
Add Your Comments
Commenting feature is disabled in your country/region.
Download The Economic Times Business News App for Live Elections News & Results, Latest News in Business, Share Market & More.

Other useful Links


Follow us on


Download et app


Copyright © 2019 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service