Seasonal weaknesses that include extended monsoons, primarily in south India, a ban on construction activities in the Delhi-NCR region and other factors like subdued demand, might lead to Indian cement companies witnessing a 4–6 per cent decline in volume for the quarter-ending December 2021 (Q3FY22).
Although realisations are up by 5–7 per cent on a pan-India basis, these may not be enough to cover input cost increase. Thus, price hikes from January are expected, dealers and cement company executives say.
Pan-India prices are likely up 5 per cent, led by a 10 per cent rise in the West and 5-7 per cent increase across the rest of the regions, except in the South where prices are likely flat.
Sources say the Eastern region may see a low double-digit volume decline YoY owing to the transporters’ strike in Chhattisgarh, sand unavailability in Bihar, among other factors. Other regions may see a low single-digit YoY volume decline.
While demand gained pace in October 2021, it slowed down substantially in November because of the construction ban in the NCR, extended monsoons in the South and a few states in the North, sand issues in the Eastern region as well as in parts of UP, and the Diwali holiday season, Axis Securities said in a report.
“We estimate demand de-growth to be between 14-16 per cent in November. Demand picked up in December, albeit at a slower pace,” it said, adding that the overall cement industry demand is expected to grow at 8-9 per cent in FY22. “However, the potential third wave of the Covid-19 and rising input costs remains key risk factors.”
Large dealers told BusinessLine that non-trade channels witnessed good demand as various central government projects related to infra and housing continued at a good pace. Rural demand – a savior previously – had slowed down considerably. Urban and semi-urban demand remained lacklustre, with state government projects progressing at a slower than expected pace owing to fund shortage.
“During the quarter, trade sales were impacted more than non-trade sales, as overall cement demand remained subdued. With the onset of the peak season and rising construction activities, we expect cement demand to revive in Q4FY22 (Jan – Mar), driven by a pick-up in the government-led infrastructure and housing projects. We expect rural and urban demand to pick up going forward as well,” a senior cement company executive said requesting anonymity.
EBITDA hit
Brokerages have predicted an EBITDA (earnings before interest, tax, depreciation and amortization) hit for cement-majors. Region-wise break-up suggests the eastern parts will report the highest de-growth, followed by the southern markets, Central, western India, and then the North.
“Volumes may decline 4 per cent YoY while EBITDA/te may shrink 17 per cent YoY (Rs 200/te) to Rs 980/te as a realisation rise of 7 per cent YoY (Rs 340/te) may fall short of the 14 per cent YoY (Rs 540/te) cost increase,” ICICI Securities explained in a report.
Pet coke and international coal prices have softened, but remain at elevated levels YoY. Diesel prices are up 15 per cent YoY (even after the recent cut by the Centre and States).
Price hikes
The east region is also bracing for the maximum price hikes on a low base – a likely hike of Rs 50/bag. Price hikes in some of the South Indian markets have also been announced from January onwards, though buys are yet to be effected in full. Sources say price hikes have been initiated in the Telangana-Andhra region.
In October, companies citing input cost pressures initiated Rs 15-40/ bag price hikes across regions. In November and December, there were roll-backs in prices as a few industry players pushed volumes to meet year-end targets.