The Narendra Modi-led government’s focus on low cost housing and development of infrastructure definitely seems to have given a leg up to sectors allied to infrastructure, including cement. No wonder then that cement companies have hiked prices anticipating the upcoming demand.
“Cement manufacturers have hiked prices thrice over the last two months (December and January) in most parts of the country. As a result, prices in West India have gone up to Rs 365 from Rs 330 for a 50-kg bag, and to Rs 380 from Rs 335 in South India, a trade source told Deccan Herald.
Prices in North India are up to Rs 290 from Rs 280 earlier, but prices in East India have not undergone any revisions and remain at around Rs 250, the source added.
“There has been a slight pick-up in demand post November. Moreover, cement is not being transported in required quantities on account of inadequate rakes due to which a shortage has been created leading to price hikes, another trade source said.
Analysts, however, are questioning the sustainability of the price hike. “Although cement prices bounced back in the recent past, their sustainability continues to be a challenge due to low utilisation (particularly in the southern region) and volatile monthly demand growth. We cut our EBITDA estimates for our coverage universe up to 10 per cent each for FY 2014-15 and FY 2015-16 to reflect the volatility.We expect a reversal in this trend in the next two quarters due to base effect,” IIFL Institutional Equities cement sector analyst J Radhakrishnan told Deccan Herald.
We continue to be positive on the sector for the medium term on the back of low capacity additions by the industry, he said. Any sharp decline in stock prices reflecting the near-term volatility is a good opportunity to increase exposure to the sector, Radhakrishnan added.