While rural and semi-urban housing demand continues to drive growth, pick-up in government-led infrastructure or low-cost housing aided growth during the month.
The cement sector has witnessed a significant demand growth in the month of September 2020. The industry demand has risen 20 percent MoM and over 10 percent, YoY. The volumes have picked up with pan-India utilization at around 70 percent led by a robust rise in construction activities post-monsoon across most regions.
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While rural and semi-urban housing demand continues to drive growth, pick-up in government-led infrastructure or low-cost housing aided growth during the month. Analysts believe pent-up urban demand and non-trade demand, especially in South and West, are likely to improve going ahead with the gradual return of migrant workers.
Volumes in North, Central, and East regions (least impacted by COVID-19) remained strong with over 20 percent MoM and 10-15 percent YoY growth aided by the pick-up in non-trade demand as well. South likely grew in mid-single-digit YoY on a low base (-25 percent) supported by election-led spending in Tamil Nadu and a rise in government projects in Andhra Pradesh/Telangana, brokerage firm ICICI Securities noted.
Gujarat likely saw sharp 40-50 percent MoM growth owing to pent-up demand with migrant workers returning while Maharashtra probably witnessed only marginal MoM growth and is still down significantly YoY, the brokerage said.
Overall, the brokerage expects the cement industry to see 1-2 percent YoY growth during Q2FY21 with North, Central, and East regions growing 7-9 percent YoY with South and West still down 12-14 percent, YoY.
Meanwhile, cost pressures have started to emerge, like diesel price increase, which is expected to have a greater impact in H2. Overall, domestic petcoke and diesel prices are up 17 percent and 13 percent, respectively, QoQ, and are up 5-14 percent, YoY.
However, overall cost increases are still likely to be contained, given improving efficiencies, structural fixed cost rationalisation, and better operating leverage, ICICI Securities said.
The brokerage sees the possibility of partial price hike absorption during Q3FY21 and expects sustainably firm prices during Jan-Jun’21.
ICICI Securities’ top picks in the sector are Shree Cement and UltraTech Cement.
(Edited by : Jomy)
First Published: Oct 6, 2020 5:15 PM IST
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