Driven by healthy demand from the infrastructure and housing sectors, cement volumes are expected to rise by a healthy 7-8 per cent in FY2025, said ICRA. In terms of Q1FY25 performance, ICRA assesses a muted growth at 2-3 per cent on-year due to a slowdown in construction activity because of the General Elections. The elections, heatwave situation and excess rainfall in some states that had impacted the demand, per a report by InCred Equities, also led to a decline in cement prices after a marginal price hike in April. Pan India cement prices have fallen by Rs 3-4 /bag (around 1 per cent) month-on-month in May 2024 and by Rs 4-5 (around 1.5 per cent) till date in Q1FY25F, InCred Equities stated. However, the report suggested that some regions may attempt price hikes in June 2024, now that elections are over and the Narendra Modi-led NDA government has taken charge, and before the onset of the monsoon.
Volume growth
With demand trends indicating subdued volume growth across most pockets with the southern region witnessing volume de-growth in Q1FY25E, Emkay Global said, volume growth is expected to increase 4 per cent YoY in Q1FY25E. “We expect UltraTech to register 5 per cent YoY volume growth (better than industry growth) owing to the recent capacity expansion and continued market share gains. Besides, Shree, Dalmia, Ramco, and JK Cement are also expected to record volume growth of 4-6 per cent. Ambuja Cements is expected to register flattish volume growth on a consolidated level,” the analysis report by Emkay Global stated. It estimated the average EBITDA of cement companies to decline by around Rs 133 QoQ, owing to continued weak cement prices in Q1FY25 and negative operating leverage. “We anticipate blended realizations for our universe to decline by ~3 per cent QoQ to Rs 5,246/t in Q1FY25,” it said.
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However, the government’s focus on infrastructure projects, sanction of additional houses under the Pradhan Mantri Awas Yojana (PMAY), and the industrial capex is expected to improve cement volume offtake in H2 FY2025. Anupama Reddy, Vice President and Co-Group Head, Corporate Ratings, ICRA, said: “The operating income for ICRA’s sample set is expected to witness an expansion of 7-8 per cent YoY in FY2025, primarily driven by volumetric growth. While the cement prices are projected to largely sustain at previous year levels, some softening of cost-side pressures – primarily power and fuel costs along with increasing focus on green power, is likely to result in an improvement in OPBITDA/ MT by 1-3 per cent YoY to Rs 975- 1,000/MT.”
Price improvement
Emkay Global too expects a gradual improvement in cement prices H2FY25 onwards. “While cement prices are currently at a 3-year low, we believe the prices have bottomed out and could potentially see gradual improvement H2FY25 onwards,” the firm said.
Meanwhile, Tushar Chaudhari, Research Analyst , Prabhudas Lilladher Pvt Ltd, said, “Few of the dealers from Western region have mentioned about possible Rs 20/ bag price hikes in the month of July. In the rest of the regions, there is no expectation of immediate price hikes as demand remains muted and the upcoming monsoon is expected to keep construction activities on light side. We expect demand to improve gradually post monsoon followed by price hike announcements by companies in H2FY25.”
According to Emkay Global, US pet coke prices in Q1FY25 have softened 6 per cent QoQ (declined 12 per cent YoY) to USD109/t, whereas US coal prices are broadly stable (up 1 per cent QoQ/ down 9 per cent YoY) at USD121/t. “We expect fuel cost savings of Rs 50-60/t in Q1FY25E. Positive benefit of lower fuel costs is likely to be offset by negative operating leverage. Hence, we expect overall cost/t to be flattish QoQ,” it said.
Going green
Further, according to ICRA, green power is expected to account for 40-42 per cent of the total power mix by March 2025, compared to around 35 per cent as of March 2023. “The major cement players in the country aim to reduce their emissions by 15-17 per cent over the next 8-10 years by increasing the share of blended cement, which uses less clinker and consequently less fuel, boosting the share of green power consumption through a mix of solar, wind and waste heat recovery system (WHRS) capacities,” it said.
From: financialexpress
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