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MOSL: CEMENT-That time of the year again; Seasonality in prices starting to play out with hikes made this week

CEMENT: That time of the year again; Seasonality in prices starting to play out with hikes made this week

 

• Our analysis of cement price movement over the past 25 years shows strong seasonality with prices rising by 7% on average in first half of a calendar year but declining by 2% in second half. We believe this is because volumes tend to be stronger in first half, but are impacted by monsoon and festive holidays (Diwali, etc.) in other half, leading a slowdown in construction activity.
• January this year has also started on a positive note as prices have increased by ~INR10/bag (3%) in most parts of the country (according to our channel checks) after declining by ~INR30/bag (9%) in the last six months. While some of these hikes may get rolled back in the next few weeks, we expect the industry to continue attempting prices hikes over the next few months as demand has been improving seasonally (i.e. month on month) as expected.
• Moreover, industry will have cost tailwind in the March quarter due to lower petcoke price and operating leverage gains from seasonally higher volumes, which should be further supportive of margins.
• Our sensitivity analysis indicates 3-7% upgrade in EBITDA for our cement universe for every 1% increase in price. Companies lower down the cost curve (ACC, Ambuja, India Cement, etc.) benefit more at 5-7% from a hike given their weaker EBITDA profile. Shree Cement accordingly benefits the least at 3%.