UltraTech To ACC, Cement Stocks Strengthen On Price Hikes Of Rs 5-15/bag

Top cement companies, including UltraTech Cement, Ambuja Cements, ACC, Dalmia Bharat, Shree Cement, and JK Cement, have hiked prices by 1-4 per cent or Rs 5-15 per 50-kg bag across regions, cement dealers and analysts told Business Standard.

The average price of a 50-kg cement bag was Rs 380 before the price hike, sector experts said, implying that the cost per bag is now Rs 385-395.

The latest price hike has come after a gap of 3-4 months, prompting shares of some of these firms to rise between 1 per cent and 3 per cent on the BSE on Friday.

Shares of UltraTech settled at Rs 7,299.2 apiece on Friday, up 1.8 per cent over the previous day’s close. While Shree Cement and JK Cement were up 2.7 per cent and 2.9 per cent, respectively, at Rs 25,769.1 and Rs 2,838.7.

UltraTech, Adani Cement, which owns Ambuja Cements and ACC, and Shree Cement declined to comment when contacted.

But analysts tracking the sector said the latest price hikes have come as demand for cement remains firm amid a pick-up in construction and infrastructure activities.

“Though the season for the cement sector begins from October onwards, the December quarter was not good from a pricing perspective. Companies had to roll back price hikes of around 2-5 per cent, taken in October. This time round, there is confidence that price hikes taken will sustain because demand is firm,” a Mumbai-based cement analyst said.

Tanvi Shah, director, Care Advisory, said she saw an uptrend in cement volume growth over the near term.

“In FY23, cement volume growth is expected to be around 8-9 per cent, owing to renewed demand in the housing segment, coupled with the government’s continued focus on infrastructure development in light of the general elections in 2024,” she said.

The hike in cement prices now, said some experts, has also been necessitated to support operating margins. The first half of FY23 (H1FY23) saw the operating or earnings before interest tax depreciation and amortisation (Ebitda) margins of cement companies decline by 10-15 per cent year-on-year, on the back of a sharp surge in power and fuel costs, according to a recent report by Crisil.

Power and fuel costs constitute 30-35 per cent of a cement firm’s total cost of production on a per tonne basis. Freight and handling costs constitute another 10-15 per cent of total cost of production (on a per tonne basis).

While the second half of the current financial year (H2FY23) has seen inflationary pressure easing for cement companies, with the price of pet coke and imported coal coming off their peaks, research and ratings agencies, such as Crisil and Care, say operating margins may still decline by 4-5 per cent in H2FY23 versus the corresponding period last year.

Ankit Kedia, associate director, Crisil Ratings, said in a recent report: “Cement production cost may rise 8-9 per cent for this financial year (FY23), given that the benefit of softening pet coke and coal prices will be visible only towards the end of the financial year as the high-cost inventory depletes.”

In a recent call with analysts, Atul Daga, executive director and CFO at UltraTech, said the attention for players in the industry was shifting to managing costs and taking calculated price hikes. “While cement volumes are good, costs remain extended,” he said. “We would have wanted it to better.”