With the general election in full swing and infrastructure construction in slow mode, we anticipate acceleration once the new government takes office. Until then, cement demand is likely to face volatility
According to a report by IBEF, between FY12 and FY23, the installed capacity grew by 61 percent to 570 MT from 353 in FY22. The Indian cement sector's capacity is expected to expand at a compound annual growth rate (CAGR) of 4-5 percent over the four-year period up to the end of FY27. It would thus begin the 2028 financial year at 715-725 MT/ year in installed capacity. India’s cement production for FY24 is expected to grow by 7-8 percent driven by infrastructure-led investment and mass residential projects. According to a report by Crisil, in the last five fiscals, the industry added 119 MTPA capacity to reach a total of 595 MTPA. The report further mentions, The Indian cement sector will add 150-160 MTPA capacity in the five years starting this fiscal, through both organic and inorganic routes, with an eye on anticipated demand growth in infrastructure and housing and in a bid to capture market share in a highly fragmented and competitive industry. “Cement demand is likely to grow 5-7% yoy in FY25 (five-year CAGR: 5.5%), led by a robust infrastructure demand and a steady demand from the housing and commercial segments, although the pace of growth would be lower than FY24 given the government’s infrastructure push ahead of the general elections in 1QFY25. The cement demand to GDP growth multiplier is likely to moderate to long-term average of around 0.9x in FY25, from an elevated level of around 1.2x in FY24,” says Khushbu Lakhotia, Director, India Ratings & Research.
Price to remain range bound
“Higher supply growth vis a vis lower demand growth coupled with current moderate capacity utilisation is leading to elusiveness in pricing power for the industry presently,” says Ranjan Sharma, Senior Director, CareEdge Ratings. According to region-wise pricing data published by brokerage Prabhudas Lilladher, except for states in western India, all other regions saw cement prices decline in the range of 0.6 percent to 6.5 percent as of March 31 from a year earlier, Prices in the market fell 6.5 percent to Rs 316 a bag from Rs 338 in March 2023. In a update from Nomura, cement prices have dropped by Rs 10 a bag across the country. In the Southern region, prices declined by Rs 19 in January, marking a Rs 30 per bag decrease compared to the previous quarter. In the Eastern region, prices decreased by Rs 11 per bag in January, a quarter-on-quarter decline of Rs 22. In the Western region, the price per bag decreased by Rs. 5, resulting in a total decline of Rs. 13 per bag compared to the previous quarter. In the Central region, trade prices decreased by Rs 5 per bag in January, a decrease of Rs. 9 quarter-on-quarter. “Cement prices slipped marginally, by ~1%, during April-December 2023, marking a trend reversal after four years of growth between fiscals 2020 and fiscal 2023 at a compound annual growth rate of 4%. With cement makers adding 35-40 MTPA of capacity this fiscal, the highest in more than a decade, and acquired capacities being ramped up, a significant increase in supply would test market discipline and restrict the increase in prices to only 0-1%,” says Miren Lodha, Director-Research, CRISIL Market Intelligence and Analytics. However, according to latest Newspapers report, leading cement companies are gearing up to increase price ranging from Rs. 10-15 per bag in the North to Rs. 30-40 per bag in the Central and East regions. But cement analysts opine hiking price when supply is greater than demand is likely to backfire.
Performance: Annual Report
In Q4FY24, UltraTech Cement recorded a 35.54 percent year-on-year increase in consolidated net profit, amounting to Rs. 2,258.12 crore for the quarter ending on March 31. The company had registered a net profit of Rs 1,665.95 crore during the same period last year (Q4FY23). The company's revenue from operations rose by 9.41% to Rs. 20,418.94 crore in Q4, compared to Rs. 18,662.38 crore reported in the previous year. Quarter-on-quarter, the revenue from operations was Rs. 16,739.97 crore. The company reported a total income of Rs 20,554.55 crore for Q4, a 9.42 per cent increase from Rs 18,783.89 crore reported during the year-ago period. On a quarter-on-quarter basis, the total income was up 21.76 per cent from Rs 16,880.45 crore in Q3FY24. Its revenue from operations for FY24 increased by 12.12 per cent at Rs 70,908.14 crore, compared to Rs 63,239.98 crore in the previous financial year. For the financial year 2023-24, the company net profit increased by 38.33 per cent at Rs 7,005.00 crore, compared to Rs 5,063.96 crore reported at the end of FY23. Orient Cement reported an increase of 1.21 percent in net profit to Rs 68.19 crore for Q4FY24. The company reported a net profit of Rs 67.37 crore for the January-March period a year ago. For the financial year ending on March 31 2024, the company's net profit increased by 42.37 percent to Rs 174.85 crore. It was at Rs 122.81 crore a year before. Ambuja Cements reported a standalone net profit of Rs.532.29 crore in the quarter ended March 2024, registering a growth of 6 percent from Rs.502.40 crore in the year-ago quarter. Revenue from operations in Q4FY24 rose 12.3% to Rs.4,780.32 crore from Rs.4,256.31 crore, year-on-year (YoY). On a consolidated basis, Ambuja Cements posted a net profit growth of 64 percent at Rs.1,055.30 crore from Rs.644.94 crore last year. Consolidated revenue from operations in Q4FY24 increased 12 percent YoY to Rs. 8,893.99 crore. ACC reported a standalone net profit of Rs.748.54 crore for the fourth quarter of FY24, registering an increase of 216 percent from Rs.236.57 crore in the same period last year. The company’s revenue from operations increased 12.67 percent in Q4FY24 to Rs.5,398.11 crore from Rs.4,790.77 crore, year-on-year (YoY).
Panning Out
UltraTech Cement has acquired the cement business of Kesoram Industries in a share-swap deal and is planning to 1.1 million tonne per annum grinding unit and captive railway siding at Parli in Maharashtra from India Cements for Rs. 315 crore. Ambuja Cements has signed an agreement to acquire a grinding unit in Tuticorin for Rs 413.75 crore with a production capacity of 1.5 MTPA. ACC has acquired the remaining 55 percent stake in Asian Concretes and Cements Private (ACCPL) for Rs. 425.96 crore. ACCPL operates a 1.3 MTPA cement plant in Nalagarh, Himachal Pradesh, and its subsidiary, Asian Fine Cements Pvt Limited (AFCPL), runs a 1.5 MTPA cement facility in Rajpura, Punjab. Shree Cement has signed an asset purchase agreement with StarCrete LLP to acquire five operational RMC plants for Rs 33.50 crore. JK Cement has acquired a 100 percent stake in Odisha-based Toshali Cement. JSW group is in advance discussions with investment banks (i-banks) to launch an initial public offering (IPO) of its cement business.
Outlook FY2024-25
“Considering the costs are expected to remain range bound, prices are expected to remain muted in FY25 as well and may register a marginal fall by 2-3% y-o-y. If the cost curve steepens due to any macro or geo–political reason amid the elusive price scenario in the industry, the same is likely to dent the profitability of cement players in FY25 and remains a key monitorable,” says Ranjan Sharma.
Although strong infrastructure demand and ongoing needs from the housing and commercial sectors are anticipated to boost cement demand growth, a potential moderation in demand cannot be discounted during a general election period when infrastructure construction typically slows down.
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