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Q1 Cement Industry Review: Budget Challenges and Outlook for Major Players
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Last Updated: 11th July 2024 - 04:39 pm
Due to subdued demand and pricing pressures, the cement industry is anticipated to report modest revenue and profit growth for the quarter ending June 2024. Analysts suggest that factors such as general elections, labor shortages, extreme heat waves, and timely monsoons may lead to weakened cement demand. Overall, the competition for market share is expected to keep margins under pressure during the quarter.
According to an analysis by Sharekhan, the sector's sales volume growth is projected to remain sluggish at 4.5% YoY. Meanwhile, the weighted average EBITDA per tonne is expected to decrease by 3.4% YoY to ₹884, as limited savings from power, fuel, and diesel prices are unlikely to compensate for weak realizations and negative operating leverage.
In summary, the brokerage noted that the sector's operating profit is anticipated to show a marginal 1% YoY growth, while net profit is expected to decline by 11.3% YoY.
Centrum Broking predicts a 3-4% YoY contraction in cement demand for the industry. "Demand in the west, east, and central regions was steady, whereas the north and south are likely to report a contraction. Infrastructure activity was weak due to general elections, but housing demand was surprisingly positive, leading to better contributions from the trade segment," Centrum Broking stated.
Sharekhan forecasts a 32.7% and 21.1% drop in net profit for Ambuja Cements and ACC, respectively, in Q1FY25. It also predicts a 70.8% decline in Grasim's net profit in Q1FY25, a 52.5% drop in The Ramco Cements, a 17.8% fall in Dalmia Bharat, and a 1.1% decrease in UltraTech.
"Weak operating margins, combined with increased interest and depreciation, are expected to negatively impact Grasim Industries' net earnings. Similarly, poor operational performance is likely to lead to a YoY decline in The Ramco Cements' net earnings," Sharekhan stated. Conversely, a 33.1% rise in JK Lakshmi Cement's net profit is anticipated.
Most cement companies delivered positive returns to investors during the April-June quarter. For example, Burnpur Cement saw the highest gain at 78%, followed by Panyam Cements & Mineral (up 55%), KCP (up 40%), and Orient Cement (up 40%). Among the major players, The India Cements and UltraTech Cement gained 38% and 20%, respectively. Ambuja Cements, Shree Cement, JK Cement, ACC, The Ramco Cements, and JK Lakshmi Cement also saw gains ranging from 1% to 10% during this period.
“Cement stocks have rallied over the past three months due to a series of acquisitions such as Sanghi Industries, Kesoram, Penna, and India Cements. We anticipate further market consolidation as financially strained companies are likely to exit, given the interest from multiple buyers. We remain selective in stocks, with Ambuja, Birla Corp, and Nuvoco as our top picks,” Centrum Broking stated.
Looking ahead to FY25, demand is expected to increase post-H2FY25, driven by public and private capital expenditures ahead of budget allocations for infrastructure and a resurgence in the rural sector. Sharekhan anticipates that cement prices may rise post-Q2FY2025 as the demand environment improves during the second half of FY25, boosted by government spending on infrastructure and housing demand. “In FY25, demand is expected to grow by 8.5-9%,” Nirmal Bang Securities reported.
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