Cement: Cement companies poised for stronger show in H2

Mumbai: Cement companies are expected to show 25-30% sequential improvement in Ebitda per tonne for the second half of the current fiscal year amid rising demand from the real estate sector and government infrastructure projects, and stable raw material prices. Sharp price hikes taken by companies across regions over the last two-three months are also seen aiding this profitability.

The improved profitability in the September quarter, along with the expected improvement in the December and March quarters is expected to lift the average operating profit per tonne of cement makers to ₹970 per tonne in FY24 compared with ₹745 per tonne a year ago, Axis Securities said in a note.

According to various estimates of analysts, close to 15% incremental growth in Ebitda per tonne in the second half of FY24 is likely to come from lower raw material prices. Another contributing factor is elevated cement prices. In the past two months, firms have been able to increase cement prices by 4-5% month-on-month. Historically, the second half of a fiscal year, especially the third quarter generates strong demand for cement as construction activities gather pace. In the second half of FY24, demand is likely to outpace supply despite capacity addition following higher real estate demand. According to real estate consultancy Colliers India, 2023 is likely to show 20-30% higher year-on-year sales in residential real estate. Besides, government-funded infrastructure projects will continue to provide stable demand for cement.

In the near term, critical factors to watch for will be the pricing strategy of cement companies, trend in raw materials prices, which have seen an uptick from their recent lows, and effect of state elections on construction activities.

“All in all, with improved pricing and robust volume growth in the pre-election year, near-term sentiments for the sector look positive,” Nuvama Institutional Equities said in a note. Among the cement firms, Ultratech Cement, JK Cement, and Ambuja Cements are likely to show higher growth in Ebitda per tonne than their peers.

For September 2023 quarter, cement makers reported 11-15% year-on-year volume growth. Operating profit surged by as much as 57-74%.

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