Our latest survey of the domestic cement sector suggests there is a risk of cement prices contracting by >4-6% in the interim as demand is quite weak.
Overall, Indian cement prices have seen a sharp correction at least in the west (down 9% MoM) and began to show weakness across central and northern India. There is some resilience in south, but 7-10% MoM demand contraction is now having its impact on both prices and sales volume.
Cost leaders appear to be taking a relook on price-volume trade-off. Unless volumes pick up, there is a risk of further weakness in cement prices.
Our medium- to long-term hypothesis remains unchanged and so do our top picks — Shree Cement and UltraTech. But there is a risk of the sector under-performing till volumes show an uptick, probably from October.
Seasonal weakness in off-take is being observed in northern, eastern and central regions with most dealers saying off-take is down by 7-10% m-o-m. West remains unusually weak. For southern region, October-December is the seasonally weak quarter. Despite efforts by cement producers, price gains seen towards early August failed to sustain and overall cement prices are down 3% m-o-m. Expectations from dealers and distributors suggest that cement prices may correct over next 1-2 months and recover thereafter.
Any stock corrections due to seasonal weakness could be an opportunity to BUY our top picks.