Cement companies in Andhra Pradesh and Maharashtra have decided to hike prices by Rs 5 per bag as construction activity gathers momentum after the end of the monsoon season.
"Cement majors in Andhra Pradesh and Maharashtra have announced a price hike of Rs 5 per bag and other regions are likely to follow suit soon. Post-price hike, wholesale cement prices in Maharashtra will stand at Rs 245-250 per bag and at Rs 230 per bag in AP," Sandeep Nanda, executive vice-president of brokerage firm Sharekhan Ltd, said.
"This will augur well for companies like ACC, Ultratech, Ambuja Cements, India Cements and Madras Cements, amongst others, which have a significant exposure in Maharashtra and AP," Nanda said.
Prices have started to rise on a piecemeal basis across the country.
"This is the beginning of the post-monsoon price hike and soon other states/regions will follow suit. We expect prices to go up in the eastern region in the next 15 days," he said.
Nanda pointed out that the gradual price hike across the country will augur well for the sector and will be a trigger for the stocks in the near-term.
"From the earlier feedback we had got from the dealers, we did not expect cement prices to rise before January 2008. Therefore the earlier-than-expected price hike is a positive surprise and will drive our earnings higher than expectations," he added.
"We expect prices to increase by Rs 5 per bag in the western and southern markets and remain flat elsewhere," Revathi Myneni, an analyst at Edelweiss Research, said. The demand growth in the south continued to be strong at 3.3 per cent year-on-year with Andhra Pradesh being the forerunner. However, a 21.4 per cent year-on-year consumption growth for October was largely supported by a 38 per cent year-on-year growth in Tamil Nadu (accounting for 31 per cent of southern offtake), Myneni said.
Andhra Pradesh witnessed a 26.3 per cent year-on-year growth in demand, which was fuelled by increasing number of irrigation projects, government housing projects, and huge complexes being built by private players like Raheja and DLF, among others.
Inventory levels are comfortable with 4-6 days of stock with dealers due to a slowdown during Diwali when markets were shut for 4-5 days. Inventory levels are 10 days in Tamil Nadu due to monsoons.
The dealers in the north were unhappy with the offtake. While despatch growth was healthy at 14.2 per cent year-on-year in October, dealers have not witnessed any significant growth in consumption.
North, Haryana and Rajasthan which accounts for 34 per cent of northern consumption have been the outperformers in demand growth. Delhi demand has also picked up owing to increased boost from airport and infrastructure projects.
While the demand is sluggish, companies have announced a Rs 5 per bag price hike from December onward, which dealers believe is to sustain market momentum and will help prices remain flat and not correct in the coming month, Myneni said. Consumption in October grew at a healthy rate of 12 per cent year-on-year in the western market. Demand from Gujarat which accounts for 29 per cent of western offtake grew by 9.5 per cent supported by increased rural offtake and demand from Reliance and Mundra special economic zones which account for 60,000 tonnes on a monthly basis.
Prices remained flat in October and stood at Rs 220-223 per bag in Gujarat and Rs 270 per bag in Mumbai.
Meanwhile, rising coal costs, which resulted in muted operating performance of cement companies in Q2 FY 08, continues to be a concern area, Myneni said, adding that while international coal rates (FoB) have gone up by 11-17 per cent month-on-month in October 2007, sea freight has also become costlier, with the index movi