Cement - Demand remains strong, prices stable in Dec'22 Our ch | DM Stocks
Cement - Demand remains strong, prices stable in Dec'22
Our channel checks suggest industry demand likely grew in high single-digit YoY and low double-digit MoM during Dec'22 as the busy construction season sets in. Accordingly, industry is likely to see ~10% YoY volume growth (3-yr CAGR of ~4%) and (8% QoQ) in 3QFY23 aided by low base of east and south. Average pan-India prices in Dec'22 remain broadly flat MoM / up 7% YoY as ~2% MoM decline in prices in east and south regions were offset by higher prices in north and Gujarat regions. Dealers suggest companies may attempt price hikes of INR 10-20/bag across regions in Jan'23. With petcoke and imported coal prices declining 15%-20% from the peak, benefits of which should start reflecting from 2HFY23 onwards, we believe the worst in terms of margin could be behind us. While near term sector stock performance would still be driven by the spread between fuel prices and cement prices, we believe risk-reward remains favorable in the medium term, as margins expand led by likely lower costs and increased consolidation. We reiterate our positive stance on the sector. UTCEM and SRCM are our top picks. We also like JKCE and JKLC. Key risks: lower demand/ prices and higher costs escalations.
