A CEMENTED FUTURE

The recent hike in cement prices has stored confidence, fuelled by prospects of a demand surge

A major shift has occurred in India's cement industry after a challenging period of intense competition and weak demand. Traditionally, cement firms cut prices in response to low demand, prioritizing volume over pricing. However, in the past two months, these firms have raised prices despite demand remaining weak, and they've maintained these hikes. This shift suggests a new earnings story for the current fiscal year, surprising and encouraging analysts. To understand the strategy's viability and its long-term impact on well-positioned cement firms, read on for a detailed perspective.

THE BASICS

Based on analysts' discussions with dealers, the all-India average cement price rose by 4.6% in October '23 on a month-on-month basis. This increase can be attributed primarily to the consistent price hikes implemented by cement companies.

In October, cement firms raised prices by approximately ₹10 per 50 kg bag to ₹30 per 50 kg bag across various regions in India. It's worth noting that in September '23, cement firms had raised prices by a more substantial range of ₹45 per 50 kg bag to ₹50 per 50 kg bag.

Among the regions, the highest price hike was observed in the southern region, with price increases ranging from 9% to 9.5% on a month-on-month basis. The second-highest price hike was noted in the northern region at 6%, followed by the western region at 5.6%, and the central region at 2.8%.

Cement firms have been anticipating this growth in cement prices for quite some time. After a few quarters of cautiously increasing prices, it appears that, in the past two months, cement firms have adopted a conscious and focused strategy. They have sharply raised cement prices by approximately 12% to 13%. What makes this price hike remarkable is the timing at which cement firms have taken this bold and aggressive stance.