Comments
Cement companies continued the sales momentum in February, thanks to better demand from stockists and real-estate companies. However, despatches were marginally lower, on a sequential basis, as the result of the hike in prices.
Following a long lull in demand during the second half of last year, demand has been on the upswing in the last two months, leading to companies hiking prices by Rs 8-15 a bag in February. Coal India also recently increased its contract prices by 30 per cent, which has resulted in cement manufacturing costs getting dearer.
“Though companies are confident that they will be able to pass on the costs to consumers, much will depend on demand,” said a source. Mr Ajit Motwani, Research Analyst, Emkay Global Financial Services, said the recent price hikes would leave little room for companies to pass on the cost push. Besides, whatever (hikes) have been implemented only cover the cost pressure with no visible signs of addition to EBIDTA (earnings before interest, depreciation, tax and amortisation).
Caught between slowing demand and rising input costs, cement companies may find it difficult to pass on the impact of the recent increase in excise duty, due to the duty rejig, in the Budget. The recovery in demand from the real-estate sector could also be countered by rising interest rates.
With inflation still hovering above the RBI target, another hike in key banking rates cannot be fully ruled out, said a cement company official. Constrained by lack of funds and prospective buyers for ongoing projects, many real-estate companies have put off their projects, he added.
BUDGET BOOST
Cement companies are pinning their hopes on the Budget proposal to increase allocation for road projects and availability of long-term funding for infrastructure projects to boost demand.
Besides, the interest subventions on housing in tier-II and tier-III cities may renew real-estate companies' interest in rural areas and boost demand for cement. Various sops offered to farmers and revision of NREGA payouts will leave more money in the hands of rural India.
“Cement demand from the realty sector will go hand in hand with better affordability by this buying segment to own a house. However, implementation has been a major problem with infrastructure projects,” said an analyst.
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.