Cement firms roll back price hikes, give up their premium valuations
the best-case scenario, the market can absorb only around ₹10/bag. Prices in east and west regions were flat from a month ago. On an average, cement prices across India were ₹293/bag in January, slightly lower than ₹294/bag in the previous month, said the report.
December quarter earnings reported so far show subdued growth in realizations. While companies with a pan-india presence have seen some growth in their realizations, regional firms, especially those based in the south, have performed dismally. Although a reduction in prices of petroleum coke and diesel do provide some respite to margins; for significant margin recovery, return of pricing power is the key, say analysts.
Meanwhile, cement demand is likely to be subdued in the run-up to the general election due to unavailability of funds and the lack of new project launches. This limits the scope of price hikes for the rest of the current fiscal year. However, demand is expected to improve after the general election. Further, the recent measures announced by the government to boost the real estate sector would aid demand growth. Investors can only hope that improved demand results in price recovery.
Speaking of valuations, large-cap cement stocks are trading at a one-year forward EV/ Ebitda of around 9-17 times, far lower compared to the highs last year. EV stands for enterprise value and Ebitda is short for earnings before interest, tax, depreciation and amortization. Even so, valuations still seem unattractive and the only way investor interest will rise is if there is a meaningful increase in cement prices.