Cement sector may see Q4 FY17 as weakest quarters: Report
MUMBAI: Cement sector may see Q4 FY17 as the weakest quarters in the recent times due to the drop in realisations coupled with an unfavourable volumes base and rising pet-coke prices, a report said. "The drop in realisations coupled with an unfavourable volumes base and full impact of rising pet-coke prices threaten to make Q4FY17 among the weakest quarters in recent times," Kotak Institutional Equities said in its report here. While dealer feedback on volumes is improving, there still remains a disconnect between dealer feedback and aggregate dispatches, it said. Cement prices that appeared to have survived the impact of demonetisation, have corrected by Rs 7 per bag on month-on-month (MoM) basis in January 2017. All-India cement prices also came off by Rs 7 per bag MoM to Rs 315/bag-continuing the downward trend in prices since November 2016. The price decline has accelerated in January 2017 and was sharpest in West where cement prices have come off by Rs 23/bag MoM. If current price trends were to continue, 4QFY17 will likely see a sequential decline of Rs 11/bag, though the comparison still looks favourable with Rs 10/bag YoY increase in cement prices, the report said. Cement prices in North & Central region declined by Rs 6/bag MoM on average in December 2016. In West, it declined by Rs 23/bag MoM to Rs 277/bag in January 2017 giving away most of the gains from sharp price jump seen in October 2016. The average cement prices in South markets declined marginally by Rs 1/bag mom although there were disparities between states. Cement prices in East declined by Rs 6/bag MoM to Rs 315/bag. Kotak Institutional Equities report said that cement volumes appeared more resilient in November with growth of 0.5 per cent yoy in a disconnect to dealer feedback, which suggested far more weakness at the consumer level. Data for November should also be seen in context with a very favourable base in November 2015 owing to the flood situation in Chennai, it said. With quarterly cement consumption of 78 mn tonnes (+11.4 per cent yoy), 4Q FY16 was among the best quarters for the industry, and accordingly the sector deals with the dual headwinds of weak post-demonetisation demand on a very unfavourable base. The production costs for the cement sector were substantially low in 4Q FY16 owing to the full benefit of the drop in pet-coke prices, the advantage of which will ebb in 4Q FY17, it added.