Exciting News in the Stock Market Today! UltraTech Cement, Ambuja Cements, ACC, Orient Cement, and The Ramco Cements saw their share prices surge by up to 14% on Monday. Shree Cements, Dalmia Bharat, and other companies also experienced gains of up to 2%.
Cement stocks are in the spotlight due to increasing capacities and ongoing industry consolidation. The strong demand for cement, coupled with expectations of volume growth, is driving the optimism in the market. The ongoing consolidation is expected to contribute to market share gains as well.
All these factors have led to significant gains for UltraTech Cement, Ambuja Cements, ACC, Shree Cements, and India Cement, with share prices rising by 15-55% in the last year.
While the long-term outlook remains promising, there may be some short-term challenges ahead. One of the issues facing the industry is the pressure on cement prices.
In June 2024, cement prices started to decline. According to Jefferies India Ltd channel checks, average cement prices decreased further in June by 1-1.5% month-on-month, ending the quarter on a low note. The first quarter average cement prices were 2-2.5% lower sequentially as well.
These price declines could impact margins and earnings, although cement manufacturers may leverage their operations to target volume growth in the seasonally strong quarter. Demand in April and May remained robust, driven by increased construction activities.
Analysts at Jefferies India Pvt Ltd noted a recovery in industry volume growth in May-June compared to the weak April performance. The volume push is expected to continue.
Manufacturers may have refrained from aggressive pricing to gain market share and volumes.
With the onset of the monsoon season, the chances of price improvement are lower as construction activities are impacted by rains.
According to Jefferies, the possibility of price hikes is limited for the next two months due to the monsoons. Margins in the first quarter may be under pressure from weak prices and minimal volume operating leverage, partially offset by softer variable costs and cost-saving initiatives by companies.
Systematix Shares and Stocks analysts mentioned a 5% correction in prices nationwide since March with an anticipated 15-20% decline in demand from Q4FY24. They highlighted that prices are unlikely to rise over the next two quarters.
Prabhudas Lilladher analysts, from their June channel checks, suggested no immediate price hikes are expected as demand remains muted due to the upcoming monsoon. They anticipate gradual demand improvement post-monsoon, followed by price hike announcements in the second half of FY25.
While there may be some short-term challenges ahead, the long-term outlook for the cement industry remains positive. Analysts predict a swift recovery driven by strong demand in infrastructure, housing, and commercial segments, favorable input prices, modernization efforts, increased efficiencies, and cost-saving measures.
