Cement co stocks reel under high cost, weak demand

Suresh P. Iyengar | | Updated on: Jun 07, 2022

Cement companies hike prices by ₹15-20 per 50-kg bag in June to pass on incremental cost to end-consumers

Cement company stocks continue to reel under weak demand and high operational cost concerns for the second consecutive day.

UltraTech Cement stock was down ₹425 in the last two days to ₹5,582 on Tuesday. The country’s largest cement company has announced ₹12,886-crore investment to enhance its production capacity by 23 mpta to 159 mtpa.

Shree Cement dipped one per cent to ₹19,785, while ACC and Ambuja Cement declined marginally to ₹2,132 and ₹363. Dalmia Bharat plunged 3 per cent to ₹1,237 and India Cement closed in red at ₹165.

Though cement prices fell ₹5-10 per bag across the country in May due to fall in demand ahead of the monsoon season, cement companies have announced a price hike of ₹15-20 per 50-kg bag in June to pass on the incremental cost to end-consumers.

Demand revival soon?

Though the excise duty cut on petrol and diesel will help cement companies bring down the logistics cost, cement demand is expected to remain subdued in the near term due to constraint in availability of sand and high temperature slowing down construction activities, said Dharmesh Shah, Research Analyst, Emkay Research.

However, he added the construction industry is optimistic on demand revival in June due to sharp fall in steel prices and pick-up in pre-monsoon activities.

Anupama Reddy, Assistant Vice-President - Sector Head, ICRA, said the cement demand is expected to grow 8 per cent to about 382 million tonne in this fiscal, supported by strong demand from rural housing and infrastructure sectors. The recent budgetary allocation of over ₹9.2 lakh crore towards agriculture, affordable housing and capital expenditure, primarily in roads and railways, is expected to augur well for cement demand, she said.

While the revenues of cement companies are expected to increase 10 per cent in FY23, the high input costs are likely to exert pressure on operating margins, resulting in a contraction by about 2.70-3.20 per cent to 17 per cent leading to a decline in operating profit, Reddy added.

Published on June 07, 2022
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