The GST rates rationalisation is expected to bring good news for the cement industry, in terms of demand and price hike. As the industry now qualifies for a lower GST rate of 18 per cent from 28 per cent, it is expected to boost demand. A Nuvama report states that they expect most of the benefits to be passed on to the consumers, and the larger cement players may increase prices gradually, most likely by Q1 FY27.
Further, Nuvama stated that the cement industry is expected to see an immediate cost benefit due to the removal of the compensation cess of Rs 400 per tonne on coal.
Nuvama on Cement sector: Effect on demand
While the overall effect of the GST cuts on the cement sector is positive in the medium term, Nuvama believes that “there will be no immediate uptick in demand, as the sector largely remains inelastic with regard to prices.”
Nuvama explained that “there will be a higher demand for the premium products as the prices come down with the cuts. As a result, the large A category companies could see an increase in their market share.”
Further, Nuvama added that some companies could see a hit if the states decide to cut the incentives and subsidies due to lowered state GST collection.
Nuvama on Cement sector: Region-wise demand and price outlook
The cement demand in the Northern region was hurt due to heavy rains and floods in some states in August, and the demand is likely to remain on the lower side in September as well. The prices also remained stable in the region in August, and Nuvama does not see any hike or cut in September as well.
The Central and Southern region also saw subdued demand in August, and it is likely to remain soft in September. However, Nuvama says that there are talks underway to increase prices by Rs 15 to Rs 20 per bag in the central region, and similarly, the Southern region could also see a Rs 30 per bag increase. The dealers are, however, expecting that it could be reversed as the GST cuts come into effect.
The Eastern and Western regions also saw similar monsoon effects, and demand is also expected to be on the lower side in September as well.
According to Nuvama, “while the prices in the Western region are expected to remain stable, the East could see a reversal of the previous Rs 10-12 per bag hike.”