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The cement sector is likely to face pressure on profitability over the next one to two quarters amid elevated input costs and weak demand conditions, according to a report by Systematix Institutional Equities.
The report said that despite price hikes undertaken by companies in April and May, the sustainability of these increases remains uncertain due to subdued demand across regions. The report noted, "We remain cautious on the sector's near-term demand outlook, as profitability is likely to stay under pressure over the next 1-2 quarters due to elevated fuel, packaging, and raw material costs." The report stated that Pan-India average cement prices rose by Rs 10-13 per bag month-on-month in May, driven by cost-led price hikes. However, the sustainability of these increases remains uncertain amid subdued demand trends.In the southern region, prices rose the most. Key markets like Telangana and Andhra Pradesh saw increases of about Rs 20-25 per bag, while Kerala and Tamil Nadu had smaller hikes of around Rs 10 per bag due to weaker demand. On average, prices in the region went up to Rs 345 per bag from Rs 325 in May.In the northern region, prices increased by about Rs 10 per bag, mainly supported by better demand in Rajasthan. However, Delhi and Punjab saw smaller increases of around Rs 5 per bag. In the east, prices went up by about Rs 14 per bag in parts of West Bengal and Odisha, while Bihar and Chhattisgarh recorded increases of around Rs 9-10 per bag. The central region remained fairly stable, with prices rising by about Rs 7 per bag month-on-month to around Rs 360 per bag. In the western region, the trend was mixed prices increased by about Rs 8 per bag in Mumbai, but planned hikes of around Rs 10 per bag in Gujarat were reversed due to weak demand.The report highlighted a broad-based slowdown in cement demand, attributed to labour shortages linked to the wedding season, state elections and reverse migration for agricultural activities, marking a reversal from the volume growth seen in the previous quarter. It says, "While pricing remains the primary lever to protect margins, the ability to pass on costs will depend on demand recovery. Persistently high construction costs could also weigh on demand in FY27" While the non-trade segment is expected to remain relatively resilient, dealers remain cautious on the trade segment. (ANI)
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