Business Standard

Cement firms set for 3rd year of growth, volume seen jumping 7-9% in FY24

Growth is likely to be starker in Central and Eastern regions, which account for over 80 per cent of the housing for all mission, he added

A Kolkata-registered company, SMPL owns limestone reserves, a key cement input, in Madhya Pradesh and is planning to come up with a cement unit there


Press Trust of India Mumbai
The heavy infrastructure push in the budget will help cement demand log in the third consecutive year of growth next fiscal, taking the volume to 425 million tonne or 7-9 per cent more than the current fiscal, forecasts a report.
The Union budget has allocated Rs 10 lakh crore, which is a full 33 per cent more funds than it had allocated for the current fiscal, for building key infrastructure next fiscal.
However, operating margin, which has been under pressure, remains clouded with prices of key inputs--coal and pet coke remaining elevated. This will have a bearing on the credit risk profiles of players as well, Crisil said in a report on Wednesday.
Cement demand grew 11 per cent on-year in the first 10 months of the current fiscal, led by rapid execution of infrastructure projects and strong traction in the real estate and rural affordable housing segments.
The momentum is likely to stay healthy in the remaining months of this fiscal as it is a seasonally strong period for construction activity across regions, the report noted.
Next fiscal will again see infrastructure and affordable rural housing segments propelling growth. The highest traction is expected from roads, where the total outlay for the ministry and the National Highways Authority has risen 25 per cent and 14 per cent, respectively, over the present budget.
The outlay for rural affordable housing has also grown 12.5 per cent in a pre-election year.
According to Hetal Gandhi, a director at the agency, strong demand is likely to lead to incremental sales volume of 30-35 mt in fiscal 2024 after a cumulative rise of 68 mt over fiscals 2022 and 2023.
This translates into a demand growth of 30 per cent since fiscal 2021, taking the total volume to 425 mt in fiscal 2024, which on an on-year basis is a 7-9 per cent growth.
Growth is likely to be starker in Central and Eastern regions, which account for over 80 per cent of the housing for all mission, he added.
However, growth in operating margin looks uncertain against the backdrop of an 80 per cent rise in power and fuel cost, which comprises 30-35 per cent of production cost, since fiscal 2021. The increase has been driven by a steep rise in coal and petcoke prices owing to global supply constraints, which were further aggravated by the Ukraine war.
Due to the disparity in price hikes and cost pressures, operating margin of cement companies ss sharply down to 13.6 per cent during the first nine months of this fiscal, which is a full 800 bps lower than last year. The decadal average of operating margin is 17-18 per cent per annum.
On the positive side, while coal prices are still elevated, global petcoke prices have been easing since the second quarter of this fiscaldown 23 per cent on-quarter--and dipped further by 3 per cent in the third quarter, in tandem with crude prices.
Domestic petcoke prices have followed suit. January and February saw more easing in coal and pet coke prices, which will support margins going ahead.
According to Koustav Mazumdar, an associate director at the agency, after hitting a decadal low of sub-10 per cent in the second quarter of this fiscal, the industry margin improved 390 bps sequentially in Q3 to 13.8 per cent after fuel prices softened.

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

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First Published: Feb 22 2023 | 10:32 PM IST

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