The recent results of major cement players in the country indicate that they are witnessing healthy margins and predicting healthy growth outlook. Take the case of UltraTech Cement that witnessed the best ever consolidated EBITDA (earnings before interest, taxes, depreciation, and amortization) margin in Q1 FY22. Though due to the pandemic the company’s total sales volume was down by 23 per cent QoQ, robust pricing across all markets helped the company.
“Continued efficiency improvement, fuel mix optimisation, asset sweating and rising share of green power moderated the impact of lower utilisation and soaring fuel prices for the company. At the same time, UltraTech Cement expects to commission its ongoing expansion (19.5 MT– spread across north, central, east and west regions), by the end FY23. It will also continue to reduce its debt to become a net cash company. It is also investing towards increasing the share of green power to 34 per cent by FY 2024, from 13 per cent in FY 2021,” pointed out Rajesh Ravi, Institutional Research Analyst, HDFC Securities.
Similarly Ambuja Cements reported an all time-high operating margin in Q2 CY 2021 of Rs 1,495 per MT. The company also had a robust pricing gain and had healthy cost controls that helped in maintaining high operating margins. “During the first half of CY 2021, Ambuja spent Rs 5 billion towards its ongoing expansion. At the end of June 2021, the working capital of the company increased by Rs 7 billion verses December 2020 which is seasonal in nature,” remarked Ravi. Dalmia Cement (Bharat) Limited also plans to increase its capacity by 58 per cent by FY 2024. The company has outlined 4.7 to 9.9 million MT cement expansion plans. Along with the ongoing expansion, these will increase the company’s cement capacity by 58 per cent to 48 MT in FY24E. Its ongoing investments in solar power and waste heat recovery system will expand the company’s share of green power to 20 per cent in FY 2024 versus 5 per cent in FY21.
Another cement major Orient cement also reported strong margin expansion during Q1 FY22. Solid pricing gains across the south and west regions helped the company which expects to deliver 6 million MT sales in FY 2022 despite the lockdown impact in Q1.
A recent report by CRISIL had indicated that the cement industry in India is expected to witness a healthy growth outlook in the near future and it is expected that the industry will witness 80 MT million tonne of cement capacity addition over the next three years. This is expected to be a ten year high for the cement industry in the country. As per CRISIL cement demand in India is set to grow after a flattish growth during the last fiscal (FY 2020-2021). It is expected that cement demand will grow at over 10 per cent year on year in the current fiscal (FY 2022) driven by a revival in spending on infrastructure and housing segments and sharper government focus on roads and railways and resumption of housing construction.
As per the report, the medium term demand outlook for cement also remains robust given the continued government focus on infrastructure through building of roads, metros, and railways. The report observes that in the affordable housing segment, nearly 68 per cent of the 19.5 million units targeted under PMAY-R (as of this fiscal) are yet to be constructed, and cement demand should get a boost as these units get built over the next two to three fiscals.
“Robust demand for cement is expected to improve the sector’s utilisation from 62 in last fiscal to upto 67 by fiscal 2024, providing benefits of scale to the players. The capacity addition will however be skewed with almost 45-47 MT addition in the eastern and central regions of the country, supported by strong demand scenarios of these regions and higher current utilisations of 72 per cent. In comparison, the southern region is expected to see additions of only 6-7 MT, given the excess supply and lower utilisation levels of 54 per cent,” pointed out Ankit Hakhu, Director, CRISIL Ratings.
As per the CRISIL report, nearly 60 per cent of the new capacities will be brownfield, i.e. enhancements at the same location, thereby keeping capital costs 40-50 percent lower at Rs 4,100-4,600 per tonne, and lowering overall cost to around Rs 25,000-26,000 crore, for the top cement players in the country. It is expected to lead to better absorption of fixed costs related to manpower, common infrastructure and overheads, and also lower the risks related to land acquisition, regulatory approvals, and implementation.