Cement prices to firm up in north, south

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Mumbai, January 15: : Demand for cement is expected to grow faster than supply, further widening the demand-supply gap and leading to firmer prices.

"Cement prices in the south have witnessed an increase of about Rs 10 per bag and we expect a further hike in the prices down south and up north in the coming weeks," Sharekhan Ltd Senior Vice President Sandeep Nanda said in a research report.

"We did not expect a price cut during the monsoon season. Soon after the monsoon the cement prices were hiked in select regions, mainly in the southern states of India," Nanda said.

Going forward, demand was expected to grow faster than the supply, further worsening the demand-supply situation and leading to firmer prices, he said.

Companies like Madras Cement Ltd (MCL) and JK Cement are investing in captive power, which will keep a check on their variable costs. Many, particularly ACC, are also investing heavily in renewable energy which will fetch additional revenue in the form of carbon credits. Such companies would also get depreciation benefits in the case of investments in wind energy.

"We are positive on the sector going forward, as we expect to see good volume growth coupled with an increase in cement prices which will boost both the top line and the bottom line of the cement companies," he said.

"We are positive on the sector going forward, as we expect to see good volume growth coupled with an increase in cement prices which will boost both the top line and the bottom line of the cement companies. We are positive about the companies that have presence in the southern states of India, such as ICL and MCL," Nanda said.

In the northern and southern regions, demand is looking strong and capacity additions may get delayed, leading to a continued demand-supply mismatch and higher cement prices going ahead, he added.

"We expect India Cements Ltd (ICL) to post a 69 per cent increase in net sales to Rs 798 crore driven by volume growth and higher realisations. We, therefore, also expect ICL to post a profit after tax (PAT) of Rs 182 crore, up 128 per cent year on year. We expect Madras Cement Ltd (MCL) to post net sales of Rs 491 crore, up 25.7 per cent YoY," Nanda said.

Sharekhan expects the OPM of ACC and UltraTech Cement to be flat at 31 per cent and 29 per cent respectively compared with that in FY 07.