At the forefront of inorganic expansions were Aditya Birla Group UltraTech Cement Ltd and Adani Group’s Ambuja Cements Ltd who acquired smaller companies to aggressively boost market share and meet capacity expansion targets.
Spate of capacity additions, elevated competition, and muted spending on infrastructure and allied projects by the government weighed heavily on cement demand and prices during the year. In effect, the industry’s key earnings parameters suffered.
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Over the last four quarters, the sector’s profitability measured through Ebitda/tonne has declined sharply from Rs1,200 to ₹700 despite cost tailwinds, according to a recent IIFL Securities report. Ebitda is earnings before interest, tax, depreciation and amortization.
While consolidation in the sector is likely to continue, some good news on pricing is emerging. A dealers’ channel check by Yes Securities Ltd showed that as of 18 December, all-India average cement price in the trade segment rose to ₹366 per bag from November exit price of ₹358 per bag. One cement bag weighs 50 kilograms. In the trade segment, cement is sold by companies to dealers, who in turn sell the product to consumers.
The increase was led by central India where prices improved by Rs11 per bag followed by the south, north, east and western regions. The months of October and November were challenging for the sector as weak demand kept sharp price improvement at bay.
So, the current price increase may not be enough to compensate for the earlier loss. All-India average cement price during the December quarter (Q3FY25) arose by ₹7 per bag to ₹361 per bag vis-à-vis the exit price of ₹354 per bag in Q2FY25, but remains below the five years of average price of ₹365 per bag, said the Yes Securities report dated 18 December.
For now, expectations are that the pain on prices may have bottomed out. That said, due to elevated competition large price hikes may not be likely hereon.
Secondly, as demand improves over next few months, the chase to meet full year volume targets in Q4 may curtail a meaningful recovery in pricing. Here, some markets may see relatively slower revival in prices than others. For instance, south India where over-capacity has kept utilization levels muted.
On the other hand, a steep rollback in cement prices from these levels, may be detrimental for the sector earnings growth outlook, leading to further downgrades.
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The sluggish trend in cement prices has eclipsed the benefits of easing input costs. According to a Nomura Global Markets Research report on 15 December, average imported petroleum coke prices for Q3FY25-to-date dropped 8% sequentially, while imported thermal coal prices saw a marginal 1% quarter-on-quarter decline.
However, the average Q3FY25 cement spread – a leading indicator of industry unitary Ebitda, is at Rs2,447/tonne, up just Rs66/tonne sequentially, as average fuel cost/tonne has declined 5% sequentially, while cement trade prices have remained largely flattish, added the report.
Increased use of green energy, alternative fuels, and improved logistics efficiency is expected to aid margins of cement manufacturers amid poor realizations.
Wide-held expectations are that government spending on infrastructure will bounce-back in the second-half of FY25. Plus, Q4 is seasonally strong for the cement sector as construction activities tend to boom.
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So, cement demand in H2FY25 is seen in the 8-9% range, translating into industry volume growth of around 6-7%. However, the sector might end FY25 with volume growth of 5-6%, much lower than around 9% growth in FY24. Meanwhile, the stock performance of large-cap cement companies was a mixed bag in 2024 mainly governed by company-specific factors. While valuations are not too expensive, they aren’t attractive either.
