Domestic cement industry poised for demand recovery in construction season | Business Standard News

Clipped from: https://www.business-standard.com/article/companies/domestic-cement-industry-poised-for-demand-recovery-in-construction-season-122010200610_1.html

Amid a strong demand outlook, brokerages see capacities and existing utilization levels of the domestic cement industry on a rise in coming years

cements

With the onset of a busy construction season, brokerages are optimistic of a demand and price recovery in the domestic cement sector in the coming months.

“Though input prices have seen some moderation recently, a sustainable improvement in demand/price is critical for the industry’s profitability going ahead. We remain hopeful of demand/price recovery in the coming months with the onset of a busy construction season,” said Emkay Research report.

In Q2FY22, higher variable costs affected the profitability of the domestic cement players, leading to an 11 percent year-on-year drop and 17 percent sequential fall in earnings before interest, taxes, depreciation, and amortisation (EBITDA) per tonne.

In the third quarter of the current fiscal, cement volumes are likely to have declined in mid-single-digit year-on-year during Oct-Nov’21 due to extended monsoon in many parts of the country and sharp decline in East volumes (on an elevated base and sand mining issues).

Amid a strong demand outlook, brokerages see capacities and existing utilization levels of the domestic cement industry on a rise in coming years.

Given the strong demand outlook of 9 percent CAGR over FY22-24 and limited supply growth of about 13 percent over FY22-24, we believe utilisations will continue to rise going ahead, said JM Financial in its report.

Nearly 60 percent of new 42 million tonne clinker and more than 80 million tonne cement capacities are planned to be added in the high-growth markets of east and central regions of the country over FY22-FY24, said ICICI Securities.

Around 30 percent of these capacities are expected by FY23-end, which will see ramp-up only from FY24, and another 30 percent of the capacities are expected to get commissioned in FY24, it said.

Brokerages are also of the view that small cement companies will also play a strong in upping volumes for the industry in the coming months.

Smaller players are invariably more cost-efficient in operations, and reducing realisation gap as against larger peers has helped them to significantly narrow their EBTIDA/tonne gap to Rs 300-350 from Rs 450-550 in FY16, said JM Financial.

Also, a stronger expansion pipeline of 27 percent of capacity as against 14 percent for large peers is expected to drive growth and market share gains in the medium term, while reducing regional concentration risk, it said.

Among the large caps, UltraTech Cement is expected to continue to post industry-leading growth and profitability over FY21-24E backed by low-cost brownfield expansions and increased cost efficiencies, said ICICI Securities.

The company’s plan to add 20 million tonne capacities (18 percent of domestic capacities) over the next 2-3 years in high-growth / utilisation markets of East, Central, and North would likely ensure faster ramp-up and higher volume growth, it said.

Ambuja Cement, ACC, Dalmia Cement, and Shree Cement among others are some of the big players in the domestic cement industry.

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