Agency
new delhi, Nov 27
Cement volumes growth is expected to moderate to 4-5 per cent to 445-450 million MT in FY2025, stated ICRA while revising its projection from an earlier forecast of 7-8 per cent released in July 2024. This, it added, is on account of slower-than-expected ramp-up in construction activity across the housing and infrastructure sectors, post the General Elections. The All-India cement volumes witnessed a muted rise of 2 per cent YoY to 212 million MT in H1FY25 on account of the slowdown in construction activity in Q1FY25 during the elections, followed by the ample monsoon rainfall in Q2FY25. Per ICRA, cement demand for the rural housing segment will be aided by an expected boost in the rural consumption in H2FY25 on the back of likely improvement in farm cash flows, backed by healthy monsoons, an upbeat kharif output and elevated replenishment levels of reservoirs supporting the rabi crop sowings. Additionally, the sustained healthy demand for urban housing should support the pick-up in cement volumes from the housing segment. Further, ICRA stated that the infrastructure segment is likely to witness greater traction in H2FY25, supported by an increase in Government spending on infrastructure projects. The Government of India’s (GoI’s) gross capex spend in H1 remained subdued at Rs 4.0 trillion (YoY contraction of 19 per cent), against the revised Budget Estimate of Rs 11.1 trillion for the full year FY2025. The substantial headroom for the GoI’s capital spending in H2 to meet the FY25 revised Budget Estimate, is likely to provide a fillip to construction activity and aid in supporting the allied input sectors like cement, stated the report.
The cement prices remained under pressure, posting a decline of 10 per cent YoY at Rs 330 per bag in H1FY25 due to muted demand and oversupply in the market. While the lower sales realisations were partially offset by moderation in costs of coal and pet coke, which eased by 38 per cent and 13 per cent YoY in H1FY25, respectively, the OPBDITA/MT of cement companies in ICRA’s sample set remained subdued and contracted by 19 per cent YoY to Rs 722/MT. On a YoY basis, the operating profit margins declined by 375 basis points to 12.0 per cent in Q2FY25 and by 192 bps to 14.0 per cent in H1FY25. Tushar Bharambe, Assistant Vice President and Sector Head, Corporate Ratings, ICRA, said, “ICRA anticipates the operating performance of the cement companies to improve from Q3 FY2025 onwards, supported by the likely price hikes, uptick in cement volumes aided by increased Government spending on infrastructure projects, pick-up in construction activities, and stable input cost pressures – primarily pertaining to power and fuel. Despite the likely improvement in H2 FY2025, the OPBITDA/MT of the cement companies in ICRA’s sample set is estimated to remain under pressure for the full year FY2025, declining by 12-15 per cent on a YoY basis to Rs 820-850/MT.
ICRA’s revised estimate of OPBDITA/MT is lower by Rs 150-180 /MT compared to its earlier forecast of Rs 975-1000/MT released in July 2024. Consequently, the operating profit margins for FY2025 are likely to ease by 130-180 bps to 15.6-16.1 per cent from 17.4 per cent in FY2024.”
Per ICRA estimates, the capacity addition in the cement industry is expected to be at 70-75 million MT during FY25-FY26, of which 33-37 million MTPA is expected to be clinker capacity and remaining grinding capacity. Around 33-35 million MT capacity is likely to be added in FY25, while 37-39 million MT addition is expected in FY26. The eastern and southern regions are projected to lead the expansion during FY25-FY26 with a combined addition of 38-40 million MT capacity, equally split between the two regions. The capacity utilisation is estimated to remain moderate at 70 per cent in FY25 on an expanded base, it concluded.
