Shares of several cement manufacturers were in focus on Wednesday after Goldman Sachs said that all the price hikes taken earlier by cement companies to offset higher raw material costs were rolled back owing to choppy demand.

Additionally, the brokerage house said that considering a further rise in fuel costs, it expects the sector’s margin in earnings before interest, taxes, depreciation, and amortisation (EBITDA) to decline sequentially in the first quarter of the financial year 2023 by Rs 50-100 per tonne.

The brokerage firm expects sectoral volume growth of 13 percent on a year-on-year (YoY) basis in the first quarter of FY23.

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While some stocks were trading lower, some cement stocks recouped their early losses in intraday trade today.

At 1005 IST, shares of UltraTech Cement were down 0.2 percent while those of India Cements fell 0.5 percent. Shares of ACC and Ambuja Cements were up 0.2 percent. Shree Cement also recovered and was now trading 0.2 percent higher.

Market experts also said that cement prices are down between Rs 15-50 or about 4 percent on a month-on-month (MoM) basis as of mid-June.

According to Fitch Ratings, India's cement demand is expected to expand by mid to high single digits over the medium term (FY22) after a mid-teen comeback in the financial year ended March 2022.

It believes the impact of inflationary pressure on cement demand from the Russia-Ukraine war has been limited so far. However, downside risks to its estimates will increase if macroeconomic conditions deteriorate significantly.

“We estimate the price hikes by cement producers will not fully counter the spike in energy prices since the start of the war. This will lead to markedly lower profitability in the April-June 2022 quarter,” said the ratings agency in a note.

Fitch Ratings is of the view that industry consolidation will continue to rise as incumbent leaders add the bulk of the new capacity. Nonetheless, lower utilisation levels will temper their pricing power, it added.

However, positive catalysts for cement stocks in the near term are:

Fall in international pet coke/coal prices

Demand normalising

Price increases being successfully enacted

Recently, CLSA said that elevated costs and a change in industry dynamics remain key factors to watch for in the sector. The brokerage expects profitability to see a sharp decline in the first half of the ongoing financial year due to the impact of cost inflation and lower volume hurting earnings.

“We forecast FY23 industry demand growth of 7 percent year-on-year and profitability to fall 13 percent year-on-year," CLSA noted.

(With inputs from Nigel D’Souza)

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First Published:Jun 15, 2022 12:27 PM IST