Cement prices high in South India

Cement prices in South were up by Rs5/bag mom in March 2019—prices in South have increased by Rs45/bag since January 2019, per our channel checks. Prices declined marginally by Rs1-11/bag in North, Central and West—thus, all-India prices were flat at Rs334/bag. Prices in South are at Rs30-50/bag premium to other regions despite lowest plant utilizations among all regions. Higher prices will aid near-term earnings for companies with large South and West presence—ACC, Ultratech (among pan-India) and Dalmia Bharat, India Cement and Orient Cement (regional names) will gain more. We maintain our cautious stance on the sector on expensive valuations. Imported pet-coke prices increased 5% to US$97/ton in March 2019—however, prices are still lower by 20% from 2QFY19. Domestic pet-coke prices increased 3% to Rs9,150/ton in March 2019—but domestic prices are down by 3% from 2QFY19. Given lagged impact of inventories (companies carry 45-60 days of inventory), we expect energy cost of companies to decline in 4QFY19 as domestic pet-coke prices declined by 3% qoq in 3Q and 2% qoq in 4Q.