All-India cement prices increased during February in all regions except the southern region. While the northern region showed an exorbitant price increase due to supply constraints, the southern region registered continuance of a huge decline in prices due to high inventory pushing by regional players. Average prices settled at Rs 304 per bag in February vs. Rs 294 per bag in January.
Though prices have increased MoM in the last two months, the recovery of the sector depends on its sustainability along with improvement in demand.
Overall, cement prices in the country increased by Rs 10 per bag. Prices in the western, eastern and central regions increased by Rs 10 per bag, Rs 9 per bag and Rs 19 per bag, respectively, on an MoM basis. Prices in the northern region increased exceptionally by Rs 31 per bag from the last month due to stoppage of supply from Rajasthan plant of Binani Cement.
News reports said at the start of the month, the Rajasthan government had issued notices to banks having accounts of Binani Cements asking them to not allow the company to withdraw money, as a tax of over Rs 1.85 billion is due on the company. This may have created a monetary crunch for the company resulting in supply stoppage, said ICICIdirect.
On the other side, the southern region witnessed oversupply by regional players at lower rates in a bid to increase their market share. This resulted in a price decline in the region by Rs 21 per bag after Rs 19 per bag decline in the previous month resulting in lowest price levels in the last two years in the region.
On the demand front, the western region witnessed robust increase in demand after a long time while central region also registered good demand led by rural demand. In rest of the regions, demand remained subdued. Going forward, continual increase in prices and improved demand environment remain key, it opined.
"We remain positive on operational cost leaders with competitive valuations. Shree Cement and UltraTech Cement remain our top picks among our coverage universe. We maintain our neutral rating on other large cap stocks like ACC and Ambuja. Among midcaps, we remain neutral on JK Lakshmi and JK Cement despite a slowdown due to good balance sheet strength. The south remains uncertain due to ongoing uncertainty in AP. Hence, we continue to avoid stocks like India Cement," ICICIdirect further said.
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