cement demand ultratech cement monsoon govt spending demand revival pricing pressure
Workers unload cement bags from a truck near the construction site of residential buildings in New Delhi, India, March 10, 2016 [Representational Image].Reuters

Cement companies can hope to see a revival in demand, which is currently weak on account of a range of factors. Higher government spending and a kick-start in construction activity in the second half of the current fiscal after a good monsoon could see "achche din" for cement firms.

"Current weakness in demand is primarily attributed to temporary factors like water shortage, severe heat wave and slackness in rural demand," financial services firm Prabhudas Lilladher (PL) said in a note.

"Forecast of a better monsoon, benefits from structural reforms undertaken by the government and elevated government spending would provide strong impetus for spurt in demand from the second half of FY2017," it added.

Cement companies have been facing sluggish demand across most parts of India, except in the eastern regions, where demand is relatively high on account of higher spend by state governments.

However, better demand was dampened by weakness in pricing for cement makers in the eastern states, according to PL.

"New supplies from Shree and JK Lakshmi Cement continued to weigh in on prices, keeping them under pressure even as demand remained strong. The region's average is expected to remain flat quarter-on-quarter (QOQ) due to stiff competition," it said, adding: "Competition is expected to further intensify as new supplies of ACC and Emami cement would hit the market in coming months."

The situation was similar in the southern parts of India on the pricing front.

"Intense competition among producers led to steep fall of 40 percent in AP/Telangana prices during the previous quarter. This compelled producers to launch tight discipline in these states. Prices in these states rose around 50 percent in the month of May... The region's average is expected to be lower by 4 percent or Rs. 15/bag QoQ on gross basis due to a sharp fall in the beginning of the quarter," PL said.

Most cement stocks ended in the green on the Bombay Stock Exchange (BSE) on Friday. 

JK Lakshmi gained 1.03 percent to close at Rs. 357, Ambuja Cements also ended 0.90 percent higher at Rs. 234.60 and ACC was up 1.70 percent at Rs. 1,558.60. Ultratech Cement was almost flat at Rs. 3,384.

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