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Will demand sustain?

Will demand sustain?

The cement sector has left the Pandemic pangs behind and are putting consumption back on track. Few of the manufacturers are going in for expansion, a positive sign. To be a USD 5 trillion economy requires huge infrastructure development which will lead to massive cement consumption. Taking note, the government has allocated huge amount for infrastructure development in Budget 2021. It bores well for the sector only if put into action.  

Covid-19 followed by lockdown has completely devastated almost all the industries. But astonishingly the cement sector witnessed a positive growth even during the lockdown.It was work in progress for the cement industry during the lockdown. Roads and highways constructions were on job with reduced workforce so were the Railways. Migrant labourers were back to their hometowns. The monsoon being normal, agriculturists had a bumper harvests which fueled demand for rural housing. All these favoured increase in cement demand which was rightly reflected in the Q1 FY2021 result of cement companies. “With the lockdown continuing for most of April 2020, the production significantly declined by 86% YoY and 84% MoM to a meagre 4 million MT. With some relaxation in the lockdown rules by the Government, the pent-up demand following complete supply stoppage and the trigger to complete pending works before the onset of the monsoons has supported some demand revival in May-June 2020. The production recovered to 22.2 million MT in May 2020 and to 26.3 million MT in June 2020. While the production improved by 17.4% MoM, it has still been lower by 6.8% on a YoY basis. In Q1 FY2021, production has been lower by 38.3% on a YoY basis,” says Anupama Reddy, Assistant Vice President, ICRA.

The quest for growth continued. According to ICRA,“the production increased by 16.1% month-on-month to 24.2 million MT in September 2020 and by 11.2% month-on-month to 26.9 million MT in October 2020. In November 2020, the production declined by 7.1% year-on-year to 25.3 million due to festive season resulting in slowdown of construction activity. While there has been some improvement by 9% month-on-month in December 2020 to 27.5 million MT, it continues to remain lower by 10% year-on-year”.

Q3FY21 – At a glance

In Q3FY21, UltraTech Cement reported over two-fold jump in consolidated net profit to Rs. 1,584.58 crore. The company’s reported a net profit of Rs 1,584 crore, up by 122% year-on-year as against a profit of Rs 712 crore in the same period last year. Revenue from operations increased 17 percent to Rs. 12,254.12 crore during December quarter, against Rs. 10,439.34 crore in the corresponding quarter last fiscal. Net sales increased 18 percent during this period to Rs 12,144 crore from Rs 10,261 crore. Shree Cement reported a 102 percent year-on-year rise in its net profit to Rs. 626.2 crore in Q3FY21. The cement maker’s revenue for the quarter saw 16.2 percent rise to Rs. 3,309.4 crore. The company’s profit before tax jumped 107 percent year on year to Rs. 846.6 crore and its total expenses for the quarter grew by a mere 3 percent to Rs. 2,569.6 crore.

The India Cements registered a net profit of Rs 62.02 crore as against a net loss of Rs 5.37 crore in the corresponding quarter of the last fiscal. The total income of the company stood at Rs. 1,162.91 crore as compared to Rs 1,194.42 crore. The company’s Ebitda improved by 65% to Rs. 218 crore from Rs. 132 crore. Ramco Cements reported 112.39 percent increase in net profit to Rs. 201.35 crore in Q3FY21, from Rs 94.8 crore in the corresponding quarter a year ago. The company's total revenue increased around five per cent to Rs. 1,345.42 crore from Rs 1,286.43 crore, a year ago.

Orient Cement clocked net profit of Rs. 53.88 crore for the third quarter ended December 2020. The company posted a net loss of Rs. 5.67 crore in the last quarter. The company's revenue from operations rose 7.10 percent to Rs. 604.61 crore in Q3FY21 as against Rs. 564.49 crore in the corresponding period of the previous fiscal. Dalmia Bharat consolidated net profit zoomed 603.3% in Q3FY21. The company reported consolidated profit after tax at Rs. 183 crore, as against a profit of Rs. 26 crore during the same period last year. Its revenue rose 18.16 per cent to Rs. 2,857 crore against Rs. 2,418 crore and sales volume increased 13.73 percent from 5.10 million tonnes to 5.80 million tonnes in Q3FY21.

JK Cement reported an increase of 74.82 percent in its consolidated net profit to Rs. 217.28 crore in Q3FY21. The company had posted a profit of Rs. 124.29 crore in the October-December period a year ago. JK Lakshmi Cement reported an over two-fold increase in its consolidated net profit to Rs. 118.43 crore in Q3FY21 against a net profit of Rs. 50.84 crore in the October-December period a year ago. Its revenue from operations during October-December 2020 was up 16.87 percent to Rs. 1,259.84 crore, against Rs. 1,077.92 crore in the year-ago period. Sagar Cement reported a jump of 1043.92% in net profit. In Q3FY21, the company reported a net profit of Rs. 41.91 crore compared to Rs. 4.44 crore reported in the same quarter last year. The company’s net sales rose 39.76% to Rs 259.75 crore in Q3FY21 from Rs. 185.85 crore in the corresponding quarter last year.

Expanding Presence and Capacity

It is a foregone conclusion, cement plays an important role in the growth of the infrastructure development of the country. Cement demand is cyclic and it fluctuates depending upon seasons. In monsoon cement consumption is less as construction activities are fewer while in summer season as construction activities increases, cement consumption too follow suit. The government has set an ambitious target of becoming USD 5 trillion economy and a global economic powerhouse by 2024-25. To achieve this gigantic target requires huge infrastructure development and for that huge amount of cement is required. Never to lose an opportunity, cement manufacturers are all set to expand their capacity to cater to the ever-increasing demand. UltraTech Cement has announced an investment of Rs. 5,477 crore towards increasing its capacity by 12.8 million tonne per annum with a mix of brownfield and greenfield expansion. The additional capacity will be created in the east, central and north regions markets of the country. This expansion includes the existing approval for the cement plant at Pali in Rajasthan, in addition to the company’s 6.7 MTPA capacity expansion currently underway in Uttar Pradesh, Odisha, Bihar and West Bengal. Ambuja Cement's clinker and cement plants in Rajasthan are scheduled to be commissioned in June quarter of calendar year 2021. JK Cement is setting up an integrated greenfield grey cement plant of four million tonnes per annum by its wholly-owned subsidiary Jaykaycem (Central) at Panna, Madhya Pradesh. The Ramco Cements plans to increase its capacity by 20 MTPA by the first quarter of FY2022. The company expects to commission the clinkering unit of 1.5 MTPA along with 9 MW waste heat recovery system (WHRS) in Jayanthipuram and 2.25 MTPA clinkering unit in Kurnool during Q1FY22 and the 1-MTPA cement grinding facility, 12 MW of WHRS and 18MW of thermal power plant in Kurnool are expected to be commissioned by FY2022.
Dalmia Cement (Bharat) has announced a capacity addition of 2.3 million tonne at its Bengal Cement Works (BCW) unit in West Bengal at an investment of Rs. 360 crore. This addition will increase BCW unit’s overall capacity to 4 million tonne per annum, making it the largest cement plant in West Bengal. Shiva Cement, a subsidiary of JSW Cement, will invest over Rs. 1,500 crore to set up a clinker unit at Sundergarh in Odisha. The plant will have an annual capacity of 1.36 million tonne. Apart from the clinker unit the company will also set up 1 MTPA grinding unit; 8 MW waste heat recovery power plant; 4 MTPA crushing plants at its dolomite and limestone mines along with a 10-km long overland belt conveyor to transport limestone from the mines to the manufacturing plant and an own railway siding with 12 km long railway track for seamless transportation of finished goods to the market. While its parent company JSW Cement plans to raise equity capital of $200 million to fund a Rs 3,600-crore expansion.

Going Green

It is a known fact that cement production releases huge amount of carbon dioxide which is responsible for environmental degradation. Cement companies are taking various steps to reduce green house gas emissions. Cement companies are investing in waste heat recovery plant and carbon capture technologies to reduce carbon dioxide emission from their plants. To reduce green house gas emission, Ambuja Cements and ACC are investing Rs. 780 crores to set up waste heat recovery system based power plants at their six cement plants across India. Ramco Cements has commissioned a 9MW waste heat recovery power plant at its 3.7Mt/yr Jayanthipuram, Andhra Pradesh cement plant and is in the process of installing two more 9 MW waste heat recovery power generating plants. On commissioning of these waste heat recovery systems, the Company’s aggregate capacity of waste heat recovery plants would be 39.15 MW. UltraTech Cement has lined up investment worth Rs 1,500 crore in FY21 in multiple initiatives, which also includes setting up of 66 MW of waste heat recovery systems. Shiva Cements will be commissioning 8MW waste heat recovery unit and JK Lakshmi Cement will be commissioning its waste heat recovery unit III Project at Sirohi this year.

JK Cement has taken various initiative to reduce carbon dioxide emissions. “Our focus is in four key areas with a combination of several initiatives implemented to reduce CO2 emissions. Our company is working on solutions to reduce the CO2 emission by energy efficiency, alternative fuels, WHR, renewable energy and reducing the clinker ratio. We have reduced total specific net CO2 from 682 to 625 kg per ton of cementitious product, ie, 8% reduction in CO2 intensity between 2016 and 2020. We have taken energy efficiency measures such as use of low thermal conductivity bricks in kiln, computation fluid dynamics (CFD) studies for pressure drop reduction, replacement of old cooler with high efficiency clinker cooler, installation of high efficiency separators for cement mills, installation of roller press with ball mill for pre-grinding of clinker, installation of latest generation high efficiency burners, high efficiency fan & motors, energy efficient blower, VFD, energy efficient compressor, energy efficient water pumps, installation of LED, improving power factor generator. In PAT Cycle-I and II, we have over achieved the targets of energy efficiency,” says Rajnish Kapur – Business Head (Grey Cement Division), JK Cement. Apart from installing waste heat recovery units cement manufacturers are coming up with many innovative ways to reduce green gas emission. To reduce dependence on petrol and diesels, Ambuja Cement is commencing sea trails for using biofuels in its fleet of captive ships, Ambuja Mukund, a move which is estimated to reduce carbon emission by around 25 percent. Cement manufacturers are open to replacing coal with alternatives for manufacturing cement. “We have invested for development of facilities for receiving, pre-processing and feeding system of all types of waste materials such as plastic waste, Agro waste, FMCG waste, RDF/SCF, solid waste mix and liquid waste mix etc,” says Rajnish Kapur.

Demand to Increase

The government is well aware, to be in league of economic superpowers, infrastructure development is a top most priority. The Union Budget 2021-22 has allocated a substantial amount for infrastructure developments. The Budget has allocated Rs. 1,18,101 crore, the highest ever outlay, for Ministry of Road Transport and Highways. A large amount of money has been earmarked for ongoing and new economic corridors/expressways, and Rs. 1,10,055 crore have been allocated to the Railways, of which Rs. 1,07,100 crore is for capital expenditure with a promise to complete 100% electrification of broad gauge routes by December 2023. The government has extended tax holiday for affordable housing projects and has taken various initiatives for the housing sector. According to ICRA Ratings, domestic cement demand is expected to increase by 18%-20% in FY22 with the volumes reaching back to around FY19-FY20 levels.

Cement consumption which gained traction during lockdown has picked up speed on government spending on infrastructure including low cost housing. Rural demand which increased during the Pandemic is likely to sustain. Overall, it will be a smooth sailing for the cement sector with plenty of infrastructure and real estate projects in the pipeline.

 




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