Indian Cement - Price euphoria beginning to reverse

Our channel checks with dealers suggest that cement price hikes, which started in April, have failed to sustain and started softening. All-India cement prices in June 2019 have corrected by 2% mom (Rs7/bag), reversing the hike taken in May. Nonetheless, with sharp 7-8% hike in April, 1QFY20E still promises to be a strong quarter despite stagnant demand. However, a seasonally weak monsoon and sluggish demand suggest price moderation should continue and margins likely to peak in 1QFY20E. We remain cautious on the sector. Cement prices—May gains reversed in June; 1QFY20E looks strong but likely to peak Our channel checks suggest all-India cement prices have declined by 2% mom to Rs361/bag in June 2019 versus Rs368/bag in May. With sharp 8% mom hike pan-India in April, average trade prices for 1QFY20E are +11% qoq. However, we note that higher price discounts in the trade segment and sharper reversal in the non-trade segment during the quarter would partially drag average realizations in 1QFY20E. Region-wise price trends. Price cuts in June were mainly led by South and West with Rs8-11/bag mom correction. For 1QFY20, pan-India trade prices were up Rs35/bag (+11% qoq) where North and East witnessed Rs30-50/bag (+11-16% qoq) hike whereas West and Central regions saw Rs30-35/bag (10-12% qoq) hike. While South prices were up Rs26/bag (8% qoq) in 1QFY20, prices hikes taken in April were rolled back and exit prices in June were back to 4QFY19 exit prices.