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Cement Demand Moderated

Published

7 years ago

August 31, 2017

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Seasonal overhang, transient impact of GST roll-out and RERA implementation in several States took a toll on cement demand in July 2017. Further, most dealers do not expect any meaningful demand recovery in the near-term, as the adverse effects of GST roll-out may still take one or two months to ease.

Notably, beginning of festivals and Pitru Paksha in coming weeks will derail the possibility of demand recovery in 1HFY18. All-India average cement price corrected by 1 per cent month-on-month [MoM] (Rs 3-5 per bag), as the soaring production cost due to rise in fuel prices compelled the companies to hold prices even during seasonal slowdown. Northern, Western and Central regions witnessed price correction of 1.7 per cent, 2.2 per cent and 1.3 per cent MoM, respectively, while prices in Southern and Eastern regions broadly remained flat MoM. Though the prices in trade segment didn’t see any sharp correction, the project segment saw a meaningful price correction, as the average price gap between project and non-project segments surged to Rs 30-40 per bag from Rs 15-20 per bag in several pockets.

Dealers expect a sharp recovery in project segment prices in coming weeks. Notably, certain pockets of Western region witnessed price improvement from August 01, 2017. While disruption in demand can be attributed to the transient impact of GST, RERA and heavy rainfall, we expect demand momentum to pick-up meaningfully in 2HFY18 mainly owing to: (a) government’s commitment for maximum deliverance in its last two years of regime; (b) likely pick-up in housing activities led by farm loan waivers; and (c) likely pick-up in rural demand post favourable monsoon.

Northern region Northern region witnessed a price correction for the third consecutive month mainly led by correction in Delhi and Chandigarh markets. Average price has corrected by Rs 3-5 per bag MoM approximately Rs 285-290 per bag. However, sales volumes remained broadly flat on monthly comparison. Prices in Delhi/NCR corrected by approximately Rs 5-10 per bag MoM and the average price currently rules at Rs 275-280 per bag. As per the dealers, sales volume remained flat MoM despite being moderately higher on YoY (year-on-year) comparison especially in trade segment. Further, prices are expected to remain flat with downward bias in the near-term. Prices in Jaipur (Rajasthan) remained flat MoM at approximately at Rs 265-270 per bag in July 2017. As per the dealers, volume remained dismal due to lack of projects and GST’s initial impact. Further, they expect prices to remain at current level in coming weeks.

Prices in Amritsar (Punjab) too remained broadly flat on a MoM comparison at approximately Rs 335-340 per bag despite moderation in MoM sales volume. Despite improved availability, sand prices are exorbitantly high owing to restriction of mining through machines. Though the flows of cement from Pakistan slowed down the price differential continued to remain high (up to Rs 40-50 per bag). Following a marginal correction of Rs 3-5 per bag MoM, the average price in Chandigarh (Punjab) is ruling at approximately Rs 325-330 per bag currently. Dealers cited scanty rain in the region supported sales volume. UltraTech Cement performed exceedingly well in Chandigarh depo during the month. As per the dealers, the prices are unlikely to witness any significant up-tick in next 1-2 months.

Southern region
Having seen price erosion in May-June 2017, prices in Southern region ended on a flat note MoM in July, with which the average price in the region stands at Rs 340-345 per bag. However, barring AP per Telangana, the demand scenario in Southern region continued to remain bleak. Average price in Telangana per AP remained flat despite demand being impacted due to GST rollout. Dealers cite that there is confusion between companies and dealers pertaining to reversal of taxes and other expenses. Average price of premium brands currently hovers at approximately Rs 310-315 per bag.

In Chennai, prices improved by approximately Rs 10-15 per bag MoM to Rs 380-385 per bag despite insipid demand environment. While political impasse and drought in Tamil Nadu led to dismal construction activities and low demand, sand crisis aggravated demand concerns. However, production discipline led to price up-tick in Tamil Nadu. Prices in Bengaluru corrected by Rs 8-10 per bag MoM to approximately Rs 360-365 per bag led by demand contraction post GST roll-out and RERA implementation. Further, demand in Ernakulam (Kerala) remained subdued and the average price continued to remain flat MoM at approximately Rs 375-380 per bag.

Western region
Average price in Western region continued to see moderation for the second consecutive month as prices softened by Rs 5-7 per bag MoM in July 2017 led by price correction in several pockets of Maharashtra like Pune and south Maharashtra. Average price is currently ruling at Rs 310-315 per bag. However, average price on YoY comparison appears to be robust (10 per cent YoY).

Prices in Mumbai-including Thane and Navi Mumbai-remained flat MoM at Rs 335-340 per bag. However, sales volumes declined by 10-15 per cent MoM owing to heavy downpour and GST roll-out. Further, there has been a sharp correction in project segment prices owing to sharp slowdown in real estate activities post RERA implementation. Dealers expect trade segment prices may fall in August 2017 due to likely further slowdown owing to festivals. Prices in South Maharashtra fell by Rs10-15 per bag MoM in July 17 to approximately Rs 300- 305 per bag due to sharp MoM demand contraction. However, on YoY comparison, sales volumes remained higher. Despite persisting sand issues, low construction activities maintained the availability. Dealers expect demand momentum to pick-up post festivals in Maharashtra. Notably, the prices were increased by Rs 10 per bag to Rs 310-315 per bag from August 1, 2017.

Prices in Pune witnessed a steep contraction for the second consecutive month and cracked by approximately Rs 30-35 per bag MoM to approximately Rs 275-280 per bag due to excess rains and low construction activities. However, prices were increased by Rs 25-30 per bag from August 1, 2017. Demand scenario is expected to improve after monsoon.

Prices in Ahmedabad (Gujarat) improved by Rs 10-15 per bag MoM to Rs 310-315 per bag despite dismal demand due to heavy downpour. Though the dealers expect the prices to remain range-bound, demand is expected to improve post monsoon owing to pre-election spending in the State.

Eastern region
Average price in Eastern markets continued to remain flat MoM at Rs 295-300 per bag despite contraction in demand. The region has been one of the best regions in terms of demand in previous quarter. However, surplus capacity continues to remain a big concern, which fades the possibility of any sharp up-tick in price. Prices in Patna (Bihar) remained flat MoM at Rs350-355 per bag. As per the dealers, demand contracted MoM owing to GST roll-out and heavy downpour. While sand mining issues appeared to have sorted out in the beginning of July, it propped up again, which can affect demand. However, dealers are hopeful about demand revival in the State after the change in political scenario in the State.

In Kolkata, the prices remained flat MoM at approximately Rs 335-340 per bag. Dealers stated that though the demand environment was impacted on MoM basis, it should recover strongly post Durga Puja festival. Further, they expect that the prices are likely to remain range-bound in next 2-3 months.

In Raipur (Chhattisgarh), prices remained flat on MoM basis and average price currently rules at Rs 210-220 bag (trade) and Rs 190 per bag (non-trade). As per the dealers, prices are unlikely to witness any improvement hereon owing to government’s intervention and instructions to the cement companies operating in the State. Prices in Bhubaneswar (Odisha) corrected marginally, as GST roll-out and heavy downpour adversely impacted the demand. However, construction activities are expected to pick-up post monsoon.

Central region
Though demand environment softened owing to seasonal overhang, dealers are hopeful about pick-up in demand momentum post monsoon on the back of Government’s projects and better expectations of farm income. Average price witnessed a marginal correction of Rs 3-5 per bag MoM to Rs 295-300 per bag mainly due to price correction in western Uttar Pradesh markets.

In Bhopal (Madhya Pradesh), prices remained flat on MoM basis at approximate Rs 310-315 per bag, as demand continued to remain flat. However, dealers are of the view that production pick-up from UltraTech’s newly acquired units may cast pressure on prices. However, they do not expect any sharp deterioration in prices in light of better track record of pricing discipline.

Prices in Lucknow (Uttar Pradesh) ended on a flat note MoM at approximate Rs 295-300 per bag. Sales volume was impacted marginally on MoM basis. Further, availability of sand still remains a concern. Dealers expect sand issues to be sorted out post monsoon. Average prices in Agra (western UP) dropped for the third consecutive month and average price corrected by approximately Rs 15-20 per bag on MoM basis to approximate Rs 290-295 per bag. Dealers expect the prices to improve post monsoon with likely pick-up in demand.

Key takeaways
Demand scenario in July 17 was impacted by seasonal slowdown, transient impact of GST roll-out and implementation of RERA in several States (15 States and 7 Union Territories have notified the Act till date). Further, demand scenario is not expected to improve in next one to two months owing to GST’s transient impact, festivities and Pitru Paksha. All-India average cement price corrected by 1 per cent MoM (Rs 3-5 per bag), as the soaring production cost due to rise in fuel prices compelled the companies to hold prices even during seasonal slowdown. Northern, Western and Central regions witnessed price correction of 1.7 per cent, 2.2 per cent and 1.3 per cent MoM, respectively, while prices in Southern and Eastern regions remained broadly flat MoM. Prices in project segment witnessed a sharper decline, which led to increase in price gap from Rs 15-20 per bag to Rs 30-40 per bag in various geographies. However, dealers expect a steeper recovery in prices from this segment.

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Price hikes, drop in input costs help cement industry to post positive margins: Care Ratings

Published

3 years ago

October 21, 2021

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Region-wise,the southern region comprises 35% of the total cement capacity, followed by thenorthern, eastern, western and central region comprising 20%, 18%, 14% and 13%of the capacity, respectively.

The cement industry is expected to post positive margins on decent price hikes over the months, falling raw material prices and marked drop in overall production costs, said an analysis of Care Ratings.

Wholesale and retail prices of cement have increased 11.9% and 12.4%, respectively, in the current financial year. As whole prices have remained elevated in most of the markets in the months of FY20, against the corresponding period of the previous year.

Similarly, electricity and fuel cost have declined 11.9% during 9M FY20 due to drop in crude oil prices. Logistics costs, the biggest cost for cement industry, has also dropped 7.7% (selling and distribution) as the Railways extended the benefit of exemption from busy season surcharge. Moreover, the cost of raw materials, too, declined 5.1% given the price of limestone had fallen 11.3% in the same aforementioned period, the analysis said.

According to Care Ratings, though the overall sales revenue has increased only 1.3%, against 16% growth in the year-ago period, the overall expenditure has declined 3.2% which has benefited the industry largely given the moderation in sales.

Even though FY20 has been subdued in terms of production and demand, the fall in cost of production has still supported the cement industry by clocking in positive margins, the rating agency said.

Cement demand is closely linked to the overall economic growth, particularly the housing and infrastructure sector. The cement sector will be seeing a sharp growth in volumes mainly due to increasing demand from affordable housing and other government infrastructure projects like roads, metros, airports, irrigation.

The government’s newly introduced National Infrastructure Pipeline (NIP), with its target of becoming a $5-trillion economy by 2025, is a detailed road map focused on economic revival through infrastructure development.

The NIP covers a gamut of sectors; rural and urban infrastructure and entails investments of Rs.102 lakh crore to be undertaken by the central government, state governments and the private sector. Of the total projects of the NIP, 42% are under implementation while 19% are under development, 31% are at the conceptual stage and 8% are yet to be classified.

The sectors that will be of focus will be roads, railways, power (renewable and conventional), irrigation and urban infrastructure. These sectors together account for 79% of the proposed investments in six years to 2025. Given the government’s thrust on infrastructure creation, it is likely to benefit the cement industry going forward.

Similarly, the Pradhan Mantri Awaas Yojana, aimed at providing affordable housing, will be a strong driver to lift cement demand. Prices have started correcting Q4 FY20 onwards due to revival in demand of the commodity, the agency said in its analysis.

Industry’s sales revenue has grown at a CAGR of 7.3% during FY15-19 but has grown only 1.3% in the current financial year. Tepid demand throughout the country in the first half of the year has led to the contraction of sales revenue. Fall in the total expenditure of cement firms had aided in improving the operating profit and net profit margins of the industry (OPM was 15.2 during 9M FY19 and NPM was 3.1 during 9M FY19). Interest coverage ratio, too, has improved on an overall basis (ICR was 3.3 during 9M FY19).

According to Cement Manufacturers Association, India accounts for over 8% of the overall global installed capacity. Region-wise, the southern region comprises 35% of the total cement capacity, followed by the northern, eastern, western and central region comprising 20%, 18%, 14% and 13% of the capacity, respectively.

Installed capacity of domestic cement makers has increased at a CAGR of 4.9% during FY16-20. Manufacturers have been able to maintain a capacity utilisation rate above 65% in the past quinquennium. In the current financial year due to the prolonged rains in many parts of the country, the capacity utilisation rate has fallen from 70% during FY19 to 66% currently (YTD).

Source:moneycontrol.com

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Wonder Cement shows journey of cement with new campaign

Published

3 years ago

October 21, 2021

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The campaign also marks Wonder Cement being the first ever cement brand to enter the world of IGTV…

ETBrandEquity

Cement manufacturing company Wonder Cement, has announced the launch of a digital campaign ‘Har Raah Mein Wonder Hai’. The campaign has been designed specifically to run on platforms such as Instagram, Facebook and YouTube.

#HarRaahMeinWonderHai is a one-minute video, designed and conceptualised by its digital media partner Triature Digital Marketing and Technologies Pvt Ltd. The entire journey of the cement brand from leaving the factory, going through various weather conditions and witnessing the beauty of nature and wonders through the way until it reaches the destination i.e., to the consumer is very intriguing and the brand has tried to showcase the same with the film.

Sanjay Joshi, executive director, Wonder Cement, said, "Cement as a product poses a unique marketing challenge. Most consumers will build their homes once and therefore buy cement once in a lifetime. It is critical for a cement company to connect with their consumers emotionally. As a part of our communication strategy, it is our endeavor to reach out to a large audience of this country through digital. Wonder Cement always a pioneer in digital, with the launch of our IGTV campaign #HarRahMeinWonderHai, is the first brand in the cement category to venture into this space. Through this campaign, we have captured the emotional journey of a cement bag through its own perspective and depicted what it takes to lay the foundation of one’s dreams and turn them into reality."

The story begins with a family performing the bhoomi poojan of their new plot. It is the place where they are investing their life-long earnings; and planning to build a dream house for the family and children. The family believes in the tradition of having a ‘perfect shuruaat’ (perfect beginning) for their future dream house. The video later highlights the process of construction and in sequence it is emphasising the value of ‘Perfect Shuruaat’ through the eyes of a cement bag.

Tarun Singh Chauhan, management advisor and brand consultant, Wonder Cement, said, "Our objective with this campaign was to show that the cement produced at the Wonder Cement plant speaks for itself, its quality, trust and most of all perfection. The only way this was possible was to take the perspective of a cement bag and showing its journey of perfection from beginning till the end."

According to the company, the campaign also marks Wonder Cement being the first ever cement brand to enter the world of IGTV. No other brand in this category has created content specific to the platform.

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In spite of company’s optimism, demand weakness in cement is seen in the 4% y-o-y drop in sales volume. (Reuters)

Published

3 years ago

October 21, 2021

admin

Cost cuts and better realizations save? the ?day ?for ?UltraTech Cement, Updated: 27 Jan 2020, Vatsala Kamat from Live Mint

Lower cost of energy and logistics helped Ebitda per tonne rise by about 29% in Q3
Premiumization of acquired brands, synergistic?operations hold promise for future profit growth Topics

UltraTech Cement
India’s largest cement producer UltraTech Cement Ltd turned out a bittersweet show in the December quarter. A sharp drop in fuel costs and higher realizations helped drive profit growth. But the inherent demand weakness was evident in the sales volumes drop during the quarter.

Better realizations during the December quarter, in spite of the 4% year-on-year volume decline, minimized the pain. Net stand-alone revenue fell by 2.6% to ?9,981.8 crore.

But as pointed out earlier, lower costs on most fronts helped profitability. The chart alongside shows the sharp drop in energy costs led by lower petcoke prices, lower fuel consumption and higher use of green power. Logistics costs, too, fell due to lower railway freight charges and synergies from the acquired assets. These savings helped offset the increase in raw material costs.

The upshot: Q3 Ebitda (earnings before interest, tax, depreciation and amortization) of about ?990 per tonne was 29% higher from a year ago. The jump in profit on a per tonne basis was more or less along expected lines, given the increase in realizations. "Besides, the reduction in net debt by about ?2,000 crore is a key positive," said Binod Modi, analyst at Reliance Securities Ltd.

Graphic by Santosh Sharma/Mint
What also impressed analysts is the nimble-footed integration of the recently merged cement assets of Nathdwara and Century, which was a concern on the Street.

Kunal Shah, analyst (institutional equities) at Yes Securities (India) Ltd, said: "The company has proved its ability of asset integration. Century’s cement assets were ramped up to 79% capacity utilization in December, even as they operated Nathdwara generating an Ebitda of ?1,500 per tonne."

Looks like the demand weakness mirrored in weak sales during the quarter was masked by the deft integration and synergies derived from these acquired assets. This drove UltraTech’s stock up by 2.6% to ?4,643 after the Q3 results were declared on Friday.

Brand transition from Century to UltraTech, which is 55% complete, is likely to touch 80% by September 2020. A report by Jefferies India Pvt. Ltd highlights that the Ebitda per tonne for premium brands is about ?5-10 higher per bag than the average (A cement bag weighs 50kg). Of course, with competition increasing in the arena, it remains to be seen how brand premiumization in the cement industry will pan out. UltraTech Cement scores well among peers here.

However, there are road bumps ahead for the cement sector and for UltraTech. Falling gross domestic product growth, fiscal slippages and lower budgetary allocation to infrastructure sector are making industry houses jittery on growth. Although UltraTech’s management is confident that cement demand is looking up, sustainability and pricing power remains a worry for the near term.