Cement cos need a pricing fix

Shares of Indian cement companies had rallied on expectations that a potential cut in the goods and services tax rate to 18% from 28% would push demand higher and thereby, prices. However, the initial excitement following the 15 August announcement has fizzled out.

- Harsha Jethmalani

Shares of large-cement makers ACC Ltd, Ambuja Cements Ltd and Shree Cement Ltd have declined 2.5-3% since 18 August.

A GST rate cut may help accelerate premiumization in the sector as it would make higher-grade cement more affordable, leading to a shift in preferences. "Pan-India players such as Ultratech and Ambuja/ACC will benefit the most, as the penetration of their premium products such as Ultratech's Weather Plus and ACC's F2R and Gold will increase multi-fold across India," Nomura Global Markets Research said in a report.

Cement in India is categorized into four broad segments, based on pricing: premium, category A, category B and category C. The average price gap between categories A, B and C is 25-30 per bag, while the difference between premium and category A can be as high as ₹150 per bag, noted Nomura. A cement bag weighs 50 kg.