Stock Market Today: UltraTech Cement, ACC, JK Cement, Ambuja Cement, Shree Cement, JK Lakshmi Cement share prices have seen a sharp 2-13% correction during the last month. The weak sentiments towards cement manufacturers are being led by the progressing monsoon season impacting construction activities, but there is more to it.
Here are three key reasons that may keep cement maker earnings under check
1. Weak Cement prices- The average all India Cement prices during the June quarter declined by 1% sequentially and by 4% on an annual basis, according to analysts’ data. The prices had weakened significantly by the end of the quarter, and during the ongoing quarter, prices are likely to have dipped even further with July and August’s average price at least 3% lower than the June exit price.
Analysts at Jefferies India Pvt Ltd stated in their mid-August report that cement prices have only worsened in Q2 to a multi-year low with a 3% decrease quarter to date sequentially. Many industry participants are now doubting the possibility of post-monsoon hikes.
2. Rising Input costs to keep profitability under check
While cement prices have been declining, the benefits of any decrease in input costs are also dwindling, analysts say. Mangesh Bhadang, a Research Analyst at Centrum Broking, mentioned that the downward trend in cement prices for almost a year has affected the profitability of cement companies. Any operating cost decline driven by power and fuel costs is likely to halt as most of the low-cost advantage is already absorbed.
3. Capacity Expansions to keep prices under check-
Cement companies are undergoing significant capacity expansions. According to Crisil Research, Indian cement makers plan to undertake capital expenditure totaling around Rs. 1,25,000 crore over the fiscal years 2025–2027 driven by robust demand forecasts and a quest for market dominance.
The capacity expansions are expected to commence in Q4FY25, meaning manufacturers striving to gain market share will not aggressively price their products. This is another concern for investors. Bhadang predicts that industry consolidation will bring pricing discipline in the long run despite aggressive capex announcements in the near term, leading to supply outstripping demand and pressure on realizations.
