After a protracted stall, cement retail prices soared in February, with the hike at the pan-India level estimated at ₹24-25 per bag (50 kg) in the last week of the month compared with the corresponding week of January.
The southern region saw the steepest hikes, at ₹52 per bag in Bengaluru, ₹62 per bag in Chennai, and ₹77 per bag in Hyderabad.
Hikes in other regions were less sharp, at ₹26 per bag in the west (led by robust hike in Pune), ₹12 per bag in the east, ₹7 per bag in the central region, and a meagre ₹4 per bag in the north, according to Crisil Research.
Prices struggled to rise in north given moderate growth in demand vis-a-vis other regions and the ongoing ramp-up of acquired assets. This upends the downtrend in cement prices seen since the rollout of the Goods and Services Tax.
Even in the current fiscal, cement prices had seen a sedate run, declining 2.5% over April and January despite healthy demand growth of 12.5-13% in the nine months, said the Crisil statement adding that a slew of capacity additions — totalling 27 MT — between the March quarter last fiscal and the third quarter this fiscal, coupled with ramp-up of acquired assets kept price hikes away despite robust rise in volumes during this period.
The recent steep hikes in cement prices will boost the operating profitability of manufacturers even as costs are descending and demand growth ascending.
Prasad Koparkar, Senior Director, CRISIL Research, “The price hikes, coupled with falling costs and rising demand growth, will enable 200-250 bps on-year improvement in margins in the current quarter. That said, sustainability of these prices beyond the current quarter appears uncertain as demand momentum is seen coming off in the first half of next fiscal given the impending elections. However, price cuts on these massive hikes would still ensure reasonable price growth of 3-5% through fiscal 2020.”
Incremental demand is expected to outpace incremental supply by 5-5.5 MT in fiscal 2020, aiding modest price hikes.
