Jefferies has expressed optimism about the recovery prospects for Indian cement companies in the second half of the current fiscal year. Based on its interactions with dealers, the brokerage reports signs of price stabilisation and improved demand conditions, suggesting the industry may be bottoming out.
Despite ongoing challenges, Jefferies remains selective in its cement stock picks, favouring UltraTech Cement among large-cap companies, and JK Cement within the mid-cap space. The brokerage highlights that the industry is targeting price hikes of Rs 10-15 per bag in December as it seeks to recover from earlier declines. “Demand growth has shown moderate improvement in October and November, and we expect this trend to continue into Q4, driven by a revival in government capital expenditure,” Jefferies said. However, it also noted that cement prices remained largely flat month-on-month in November, and the year-to-date price decline was still trailing the brokerage’s forecasted 6% annual drop. To meet its annual estimates, Jefferies anticipates a 2-3% price increase (Rs 9-10 per bag) for the remainder of the fiscal year.
Looking ahead, Jefferies expects cement volumes to grow 8-10% year-on-year in the second half of FY25, in contrast to the flat growth in the first half. The anticipated growth is largely attributed to increased government spending on infrastructure projects. While the demand outlook appears positive, Jefferies noted that the run-rate in October and November was below this projected growth. On the cost side, Jefferies observed a slight increase in petcoke prices in November, although they remained below the $100 per tonne level seen earlier in the fiscal year. Despite this, spot prices for the quarter-to-date period were 12-26% lower compared to the previous quarter and year-on-year.
Jefferies also provided a region-wise breakdown of cement market dynamics. In the north, prices were higher in November, partly due to a supply shortage in Delhi caused by a construction ban. The central region, including cities like Lucknow and Bhopal, faced pricing pressures across construction materials, including steel, but demand showed signs of recovery. In the south, however, dealers reported a decline in prices due to weak demand, increased competition, and challenges such as heavy rains and liquidity issues. The east, particularly Kolkata and Patna, saw volatile pricing as dealers offered rate discounts in response to intense competition and soft demand. Dealers in the west, especially in Ahmedabad, faced liquidity issues from delayed payments and a labour shortage post-festive season, leading to soft dispatches. Maharashtra also reported weak demand following recent elections, further dampening prospects in the region.
