3 key factors that should keep cement maker’s earnings in check
Business Business: Shree Cement JK Lakshmi Cement share prices have seen a sharp decline of 2-13% in the past one month. The reason for the weak sentiment towards cement makers is the monsoon season, which impacts construction activities, yet there is more to it.
Here are three key reasons that could keep cement maker earnings in check
- Weak cement prices – According to analysts data, average Indian cement prices had declined 1% sequentially and 4% on an annual basis during the June quarter. Analysts say prices had eased significantly by the end of the quarter. Cement prices are expected to fall further during the current quarter and the average July-August price is at least 3% lower than the June ending price. Analysts at Jefferies India Private Limited said in their mid-August report that cement prices have reached multi-year lows in Q2 (up 3% quarter-on-quarter on a sequential basis). Many industry participants are now skeptical about the possibility of a price hike even after the monsoon, they said
- Input cost hike to keep profitability in check
Though cement prices have declined, analysts say the benefit of any decline in input costs has also been outweighed. This will further impact profitability. Mangesh Bhadang, Research Analyst at Centrum Broking, said “Cement prices have been on a downward trend for the last one year or so, impacting the profitability of cement companies. The decline in operating costs driven by power and fuel costs is likely to stop, as most of the benefit of lower costs has already been absorbed.
- Capacity expansion to keep prices in check
Cement companies are undertaking significant capacity expansion. According to Crisil Research, driven by strong demand forecasts and in search of market dominance, Indian cement manufacturers are planning to make capital expenditure (capex) of about Rs 1,25,000 crore during FY2025-2027.
