All-india cement prices saw a decline of Rs 6/bag m-o-m in June 2017, eroding some of the gains seen in the preceding two months. While West retained most of its price increases, North and Central have given up a large part of the increases taken at the start of the quarter. 1QFY18 will see realisations improve by Rs 400/ton compared to the same period last year for pan-India players, though higher production cost through increase in pet-coke prices will constrain the improvement in profitability.
Cement prices decrease in June
All India cement prices decreased by Rs 6/bag m-o-m to Rs 343/bag in June 2017 as prices decreased in the North, Central and South. Price decreases were strongest in the South followed by North and Central region even as East saw some moderation. On a quarterly basis, West will see the maximum improvement in cement prices followed by South and trailed by North and Central.
Cement prices in North and Central decreased by Rs 10/bag m-o-m each and stand at around Rs 320/bag currently compared to Rs 314/bag in March 2017, retracing most of the gains due to the price increase in April 2017. Cement prices in the West improved by Rs 2/bag m-o-m and stand at Rs 335/bag currently. In Gujarat, cement prices increased by as much as Rs 20-30/bag m-o-m. Cement prices in South have declined by Rs 12/bag m-o-m — average prices now stand at Rs 368/bag. The decline in prices was led by AP/Telangana and Kerala. Cement prices in East saw improvement of Rs 3/bag m-o-m in June 2017, aided by price increases in West Bengal leading to an all-time high of Rs 370 in June 2017.
Reported volumes at disconnect with aggregate industry data
Industry volumes as per DIPP declined 3.7% y-o-y in April 2017, post an 11.6% y-o-y decline in 4QFY17. Industry data appears to be at disconnect with the modest volume growth reported by the larger players for 4QFY17. Pet-coke prices have continued to increase in the month of April 2017, reaching $94/ton from $88/ton in March 2017.
Price increase in 1QFY18 gives credibility to earnings forecasts
Our earnings estimates largely factor the price increase taken in 1QFY18. The strong pricing action across regions, gives early credibility to earnings forecast that have been susceptible to large downgrades in the past. Valuation multiples for companies such as Ultratech and Shree Cement already factor in the positives of the current prices increase while even ignoring the earnings dilution on account of a large acquisition in the case of Ultratech. Orient Cement in our coverage universe benefits most from the price increases in 1QFY18, owing to the company’s large exposure in Maharashtra.