Cement Sector Demand Improves

According to Emkay Global Financial Services, the rural sales demand for cement picked up significantly after easing lockdown norms. Individual housing segment demand has improved recently with a pick-up in urban demand. Initially, demand dipped by more than 50% when the lockdown was implemented which was primarily due to the slowdown in urban demand.  In Q1 retail sales was very strong compared to last year as demand improvement was led by better rural sales. Infrastructure demand was impacted at that time due to strict lockdown norms and migration of labourers from urban areas An increase in prices has also been announced by several companies. In the North region, there has been an increase of Rs. 30-40/bag in the non-trade segment in Oct'20. Some companies have also announced Rs. 10/bag price increase in the trade segment but that has not been implemented yet. The gap between trade and the non-trade price had increased to Rs. 90- 100/bag which is not sustainable as it may lead to a shift of non-trade material into the trade segment. Going forward, demand is expected to improve in Bihar and NCR after the festive season with the only challenge being state elections in Bihar. Infrastructure demand has improved in both the markets and chances of recovery in urban demand is increasing as fear of Covid-19 has more or less faded. In Bihar markets, cement prices are expected to improve only after the festive season comes to an end, while in NCR a further rise in price is expected in the non-trade segment. Volume recovery has been ahead of our estimates in H1FY21 and dealers are expecting positive momentum to continue. Price deterioration in NCR/Bihar markets has been higher than our expectations and we need to observe price recovery in Q3FY21.