Cement value will increase welcome, however solely provide short-term margin safety

MUMBAI: Buyers in cement shares can breathe a sigh of reduction now that the long-awaited value hikes have occurred. There have been issues that enter price inflation would quickly begin to eat into the business’s working margins with out rising costs.

The most recent verify of the seller channel by Motilal Oswal Monetary Providers Ltd confirmed that in March cement costs elevated by 15-30 rupees / bag within the areas. A bag of cement weighs 50 kilograms. On common, on the pan-Indian stage, a bag of cement now prices Rs 360, up 5% month on month (mother). Regionally, costs in southern India have elevated by 30 rupees / bag, up 8% per 12 months.

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Regardless of the frenzy so as to add capability, cement gamers within the east have raised costs by round 20 rupees / bag, the survey confirmed. As well as, costs in northern India are up 4-5% from a month in the past, however central India has seen smaller will increase of Rs 5-10 / bag.

Analysts say sturdy demand, due to a pickup in actual property and concrete infrastructure exercise in most areas, has contributed to the rise in costs. However these could solely provide short-term safety to the margins.

“Within the present demand situation, this spherical of value hikes can be absorbed. This solves the issue of compacting margins to some extent. However is that sufficient? It will rely on the evolution of petroleum coke and diesel costs. Sea freight has additionally elevated, so firms importing petroleum coke might want to think about these prices as effectively. We see extra benefits in these commodities and which will require extra value hikes sooner or later, and it stays to be seen if additional hikes are absorbed by the market, “stated an analyst at a brokerage agency. servant who didn’t want to be appointed.

In latest quarters, the sector has benefited from favorable commodity costs. Through the December quarter, working margins for some key cement producers peaked for a number of years.

Nonetheless, with the restoration in crude costs, this tailwind became a headwind for cement producers. On an annual foundation, petroleum coke and diesel prices have elevated by over 70% and 30%. Some cement firms have changed petroleum coke with coal of their gasoline combine, however coal costs are additionally on the rise.

In a convention name with analysts after the outcomes, administration of main cement producer Ultratech Cement Ltd expressed issues about inflation in enter prices. They stated gasoline was practically 13% of the price of the cement business, and coal and petroleum coke have been each buying and selling round $ 110 per tonne, up from round $ 60 or $ 65 in June of l ‘final 12 months. “The petroleum coke market has skyrocketed in latest months and is anticipated to peak by June in all probability,” added administration.

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