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MOSL: CEMENT-Not walking the talk; Attempts by companies to hike prices fail, again

Cement: Not walking the talk; Attempts by companies to hike prices fail, again

 

• Price hikes taken in the north and central regions failed to sustain in Jan’19.
• Prices in south remain subdued; however, companies in the region have announced hikes in the range of INR30-50/bag from 1st Feb’19, which, if absorbed by the market, should partly ease the pressure. In our view, such huge price hikes are not sustainable and, in the best-case scenario, the market can absorb ~INR10/bag.
• Prices remained flat in east, with no visibility on a hike. We note that prices in the western region were flat QoQ, as hikes announced in some regions were rolled back.
• Liquidity issues meant that demand was soft across most regions. Also, not much change is likely in the demand trend in the run up to the general elections, and thus, we do not factor in significant price hikes in 4QFY19. Prices are likely to inch up 1% QoQ in the north, central and west regions, but decline by 1% QoQ in east and south in 4QFY19.
• We prefer companies with higher exposure to north, as the region is likely to witness highest utilization improvement – we prefer SRCM. We are also confident on ACC, which is on the growth capex mode and working on cost rationalization. Among companies not exposed to the north markets, Dalmia Cement (DBEL) appears well positioned and is likely to see a multiple re-rating, led by strong earnings CAGR over the next two years, driven by healthy volume growth.