The recent price hikes undertaken by the cement industry, led by the southern region, on market share tussle will be rolled back as demand will weaken on account of the monsoon, according to Nomura Research.
Cement companies announced a mid-month price hike with the pan-India trade prices rising by Rs 17 per bag to Rs 347 per bag, a 5% and 3% increase from August-start and July-exit prices, respectively.
This hike comes after trade prices moderated 2% month-on-month to the lowest levels since January 2019, it said in a note on Aug. 22. These announcements have been made more to restrict further moderation than to increase prices, it said.
"Generally, such price hikes often get rolled back due to weaker demand on account of monsoon, and we expect the same to happen this time as well." The south and central regions led the change in price hikes followed by the North and East regions.
In the southern region, prices were hiked by Rs 25 per bag amid a market share tussle, but absorption remains a concern, according to Nomura. "While dealers remain confident in Bengaluru and Kerala, we see the potential of hike absorption as bleak due to the ongoing market share tussle in South."
In central regions demand is on the rise as moderate rains have come as a relief, as conditions have become too hot for construction, the brokerage said.
Nomura prefers and has a 'buy' rating on Shree Cement Ltd., Ambuja Cements Ltd., and The Ramco Cements Ltd. The brokerage has a 'neutral' rating on Nuvoco Vistas Corp. and maintained 'reduce' on Dalmia Bharat Ltd.
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