Moneycontrol Bureau
Fight for survival continues in the cement sector as sluggish demand and slow growth are ailing the sector. Only saving grace is strong demand in East India due to higher spending by state governments. July-September earnings, too, were not anything to be cheerful about. Adding to the woes will be implementation of goods and service tax (GST) which is likely to become a reality in 2016.
V Lakshmikumaran, Managing Partner, Lakshmikumaran & Sridharan says, "Service tax paid on the transportation cost if is not made available at the dealers’ level, all become cost of the cement production. Unless and until the rates of GST on cement is kept at the level of not more than 12 percent, it is going to have adverse impact as far as the infrastructure industry is concerned."
Falling price
In North India, cement prices dipped to a four-month low as it fell in the range of Rs 40‐50 per bag in November and December due to intense competition and weak demand. Prabhudas Lilladher expects prices to further soften by Rs 5‐10 per bag in rest of the month due to year-end discounts and lean season for activity. Sequentially, realisations, the region’s average prices are expected to fall by Rs5 per bag, it adds.
According to the brokerage, prices are expected to fall by Rs 12 per bag in Andhra Pradesh quarter-on-quarter due to low prices in October. Prices in Karnataka fell by Rs 8 per bag Q-o-Q due to surge of material from AP while, prices in Tamil Nadu and Kerala remained stable Q-o-Q in December.
Prices in Maharashtra fell by an average of Rs 16 per bag (Q-o-Q) due to intense competition from Southern players and weak demand. While, prices in Gujarat are up by Rs 5 per bag (Q-o-Q) on the back of better discipline.
However, it does not end there. Prabhudas Lilladher says margins would contract sequentially across the regions due to weak prices, partially offset by savings in energy costs. "We see a strong case for revival of price/supply discipline in northern and western region as the current prices are unsustainable at current levels due to weak earnings," it adds in a report.
The brokerage picks ACC, UltraTech and JK Lakshmi Cement as best bets in the sector.Posted by Nasrin SultanaFollow @NasrinzStory
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