Q2 Review: How North-Based Cement Firms Stole A March Over Southern Peers

The price realisation of companies, including JK Cement Ltd., JK Lakshmi Cement Ltd. and Shree Cement Ltd., improved over the last year, according to data compiled by BloombergQuint. That came on the back of improved sand availability—a key raw material for construction—the government’s push for low-cost housing and independent house building.

In contrast, weak demand, excess supply and lack of government funding contributed to underperformance of cement makers based in south India, including The India Cements Ltd. and The Ramco Cements Ltd.

Among pan-Indian companies, Ultratech Cement Ltd.’s realisation was the highest led by its exposure to the north Indian market. Nearly a third of its installed capacity is in the region compared with 11 percent for Ambuja Cements Ltd. and ACC Ltd.’s 6 percent.

What Companies Say

Cement makers expect demand to revive in the latter half of the ongoing financial year though it may affect pricing.

Demand (for cement) so far this fiscal has been marred by election, prolonged monsoons and if demand was to recover one could expect some correction (in prices) to take place, Sushil Kumar Wali, the company’s whole-time director of JK Lakshmi Cement, told BloombergQuint in an post-earnings interaction for the September quarter.

JK Cement anticipates demand may recover in December or January next year. “The ban on construction activity in Delhi-NCR due to air pollution concerns is expected to weigh on volumes,” said AK Saraogi, chief financial officer of the company. “Expect recovery in demand to take place once situation normalises in the region.”

Analysts’ Take

The Bloomberg analyst consensus has majority ‘Buy’ rating on JK Cement and JK Lakshmi Cement—which also have the highest potential upside among peers. That’s because brokerages perceive the valuations as inexpensive, improving profitability and reducing leverage on the back of strong cash flows.