homeearnings NewsCement industry quarterly review: Strong demand, cost efficiency, and promising profitability shape positive outlook
Cement industry quarterly review: Strong demand, cost efficiency, and promising profitability shape positive outlook
The cement industry demonstrated resilience and potential for growth in the past quarter. Key factors such as strong volumes, cost optimization, and demand from infrastructure and housing projects played a pivotal role in shaping the industry's performance. As we move forward, it remains crucial for cement companies to adapt to changing market dynamics and focus on sustainable growth strategies to stay ahead in this competitive landscape.
The cement industry has been closely watched over the past quarter, with several key factors influencing its performance. One of the primary driving forces behind the cement industry's growth in the past quarter was the significant increase in cement demand.
On a year-on-year (YoY) basis, cement demand witnessed substantial growth, reaching mid-teens. This surge was primarily fueled by government infrastructure projects and a steady demand for housing.
In the quest for operational excellence, cement manufacturers sought to reduce costs in the first quarter. The decline in energy costs partially contributed to an overall decrease in expenses on a quarter-to-quarter (QoQ) basis. Jefferies, a leading financial services company, predicts an impressive Rs 100 decline in the overall cost per tonne.
Cement prices experienced varied trends across different regions during the first quarter. While prices remained stable in the southern region, there was a slight weakening of prices in the eastern and northern regions on a QoQ basis. Jeffries forecasts a potential decline of 0.5-2 percent in realisations on a QoQ basis.
The combination of strong volumes, lower costs, and flattish prices is expected to yield a slight improvement in EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) per tonne on a QoQ basis. This signals positive prospects for cement companies in terms of profitability.
The first quarter witnessed a decline in spot energy costs, promising potential benefits in the upcoming second quarter. Jeffries anticipates an improvement of approximately Rs 50 per tonne on a sequential basis as the benefits of reduced energy costs start to manifest.
Several cement companies have already reported their financial results for the past quarter. Based on their performance and outlook, Jeffries has identified potential outperformers and underperformers. Companies like ACC and Ambuja Cements are likely to report better YoY growth due to a favorable base effect. In the midcap segment, Ramco and Dalmia Bharat are expected to showcase strong volume growth on a YoY basis. However, Ultratech Cements' EBITDA growth in the first quarter might appear relatively low, mainly due to a remarkably robust showing in the corresponding period last year. Nonetheless, an overall improvement in profitability is anticipated for quarter one FY24, with the full benefits of lower costs expected to reflect in the second half of the year.
According to Rajesh Ravi, HDFC Securities the growth in the cement sector is being driven by the strong momentum in the government projects.
“Overall quarter one numbers are very strong on volumes front. We are factoring in sequential decline of 3 percent, which implies around 16 percent YoY volume growth – this is one of the strongest volume growth quarters,” he said.
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