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Cement makers are expected to report stable margins for the June 2021 quarter despite cost pressures and lower volumes when compared with the March 2021 quarter.
Unlike last time, the second wave of COVID-19 led to localised lockdowns across the country starting with northern and western regions during the June 2021 quarter. As a result, sales of cement were impacted both in urban and rural centres.
Though some key infrastructure projects continued, and they spurred cement demand, availability of workers limited the activity levels. Cement retail volumes were hit in May 2021 which saw the peak of virus infections. But June 2021 month saw some good recovery with gradual ease of lockdown restrictions.
Prices
In terms of prices, while the majority of price hikes taken during April first week were rolled back post imposition of restrictions, June saw average price hike of 6.5 per cent QoQ with east, south and west regions witnessing hikes of over 11.8per cent, 8.6 per cent, 7.5 per cent, respectively.
“With this, we expect the June quarter to close with an average price hike of 6.5 QoQ. This would help companies to mitigate cost pressure during Q1FY22 that should lead to broadly remain flat to positive margins, but profitability may see a drop due to fall in volumes,” said a report of ICICI Securities.
Most of the companies had indicated higher capacity utilisation levels for the March 2021 quarter, on account of strong demand in rural centres and pick up in infrastructure activities. However, the second wave of COVID-19 caused some temporary slowdown.
Demand outlook
The demand outlook is favourable for the cement makers due to continuing spend on infrastructure development by the government and resumption of real estate activities.
Though companies increased the prices to offset increased cost pressures and lower cement sales in the past two quarters, there would be some roll back in the prices in the medium term with temporary moderation in the demand due to onset of monsoon, pointed out industry analysts.
For FY22, the domestic cement production is expected to record at least mid-single digit growth after two consecutive years of de-growth. This is due to volatile and unstable economic conditions. However, the profitability for cement players is expected to remain healthy for FY22 supported by better volumes and continuing pricing power enjoyed by cement companies that is likely to offset their cost pressures considerably.
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