UltraTech Has Headroom To Raise Cement Prices In Medium Term On Demand Revival, Says CLSA

An expected revival in demand due to tax cuts and price adjustments to account for cost inflation will allow UltraTech Cement Ltd. to raise cement prices in the medium term, multinational brokerage CLSA said.

The company is optimistic about a demand recovery in the second half of the current fiscal, growing 10-11% due to a rise in discretionary spending after income tax cuts, interest rate reduction, and GST cut across the board. It also estimates removal of coal cess and replacement by GST will reduce the cost by Rs 20 per tonne. Coal is vital to the cement industry as an energy source to heat kilns and a component in the final mix through its ash content.

"With resilient pricing, an improving demand outlook, we see risk-reward favourable for Ultratech," analysts at CLSA said in a note, while also highlighting that pricing increases in the past few months have largely been due to subdued realisation last year and soft volume growth.

The reduction of GST on cement to 5% will be a complete pass-through to consumers, CLSA noted.