To take advantage of this stable demand, the companies are increasing capacities.
By Rajesh Naidu, ET Bureau
According to the data for the past 20 years, cement firms have increased prices in the fourth quarter of a fiscal.
ET Intelligence Group: Cement stocks have gained 7-17 per cent in the first two weeks of January following higher prices. After falling for the past eight months, cement prices rose by 5-15 per cent year on year in the first week of January. Cement dealers foresee further increase in prices in February once infrastructure-related construction gains momentum.
The all India average cement price rose by 4-5 per cent to Rs 350 per 50 kg bag on year-on-year and quarter-on-quarter basis. The question on investors’ mind would be whether the price rise is a sign of reviving demand cycle for the sector. Analysts and sector experts believe that there is basis for improvement in demand given the sustained long-term investments in infrastructure by the government, which plans to invest Rs 102 lakh crore in the five years ending FY25. So far, 7,000 kilometres (km) of roads have been constructed with a plan to build additional 2,000 km by March 2020. Due to slowdown in the real estate sector, which provides 40-60 per cent of cement demand, a clutch of Bharatmala projects covering 34,000 km in the phase-I should create stable demand for cement companies in the coming quarters.
To take advantage of this stable demand, the companies are increasing capacities. The sector is expected to add capacity of 23 million tonnes (MT) in 2020, which will enhance the installed capacity to 508 million tonnes per annum.
According to the data for the past 20 years, cement firms have increased prices in the fourth quarter of a fiscal. This supports the cement dealers’ assumption that prices may increase in February as well. Even prices of key raw materials such as petcoke and imported coal have been cheap enough to enhance the earnings of cement companies.
Given these factors, analysts believe that certain large and mid-sized firms such as UltraTech, Ambuja Cement, Shree Cement, and Ramco may report 15-25 per cent earnings growth in the March 2020 quarter.