As highlighted in our recent Ground View magazine (Click here), the importance of supply-chain efficiencies continues to gain momentum in the cement sector. Select manufacturers are thriving hard to ensure that the transition to these efficiencies is more compliant and less erratic. Vigilance on this front is the key for its success and hence manufacturers who remain more vigilant here will have the first mover advantage as they will make their business fundamentals better insulated vs peers. Additionally ,the beauty of these efficiencies is that they are independent of cement prices that is to say earnings of cement manufacturers will no longer be dependent on just cement prices but also other factors such as these supply-chain efficiencies with almost equal weights.
On cement prices in particular, our ground checks reveal a sustained upward momentum in most markets. However, given that the demand has been extremely weak in Q1 because of the pre-election era and shortage of labour in most pockets, the industry is facing natural challenges which has been a key resistance to this upward price momentum. Though Q1 prices are expected to be directionally better vs. Q4, the positive gains on realisations may be much lower than what was anticipated in the beginning of Q1 mainly because of lack of demand. The industry remains fairly optimistic of demand revival by mid-June or early July and this will decide the course of cement prices for the rest of fiscal. However, having said that it is time for us to look at the sector on not just cement prices and demand front but all other factors such as supply-chain efficiencies which give shape to ‘holistic’ efficiencies to the sector and its participants. Manufacturers who deliver ahead on the curve on ‘holistic’ efficiencies will have irreversible differentiating factors and competitive advantages vs. peers.
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