Weak Demand and Pricing Pressures Expected to Impact Cement Sector in Q1FY25
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Cement sector Q1FY25 challenges
Weak Demand and Pricing Pressures Expected to Impact Cement Sector in Q1FY25
Due to weak demand and pricing pressure, the cement sector is expected to report modest revenue and profit growth for the quarter ending June 2024. Analysts cite general elections, labor shortages, severe heat waves, and timely monsoons as contributing factors to weak cement demand. Intense competition is likely to keep margins under pressure during the quarter.
Expected Performance Metrics:
- Sales Volume Growth: According to Sharekhan, the sector’s sales volume growth is projected to be a soft 4.5% year-over-year (YoY).
- EBITDA per Tonne: Weighted average EBITDA per tonne is expected to decline by 3.4% YoY to Rs 884 due to limited savings from power, fuel, and diesel prices, which won’t offset weak realizations and negative operating leverage.
- Operating Profit and Net Profit: The sector’s operating profit is expected to see a marginal 1% YoY growth, while net profit is anticipated to decline by 11.3% YoY.
Regional Demand Outlook:
- Regional Variations: Centrum Broking expects a YoY contraction in cement demand by 3-4%, with steady demand in the west, east, and central regions, while the north and south regions are likely to see a contraction.
- Housing Demand: Despite weak infrastructure activity due to elections, housing demand has been surprisingly positive, contributing better to the trade segment.
Company-Specific Projections:
- Declines: Sharekhan projects significant declines in net profits for major companies:
- Ambuja Cements: -32.7%
- ACC: -21.1%
- Grasim: -70.8%
- The Ramco Cements: -52.5%
- Dalmia Bharat: -17.8%
- UltraTech: -1.1%
- Increases: JK Lakshmi Cement is expected to see a 33.1% rise in net profit.
Cement sector Q1FY25 challenges
Share Price Movements:
- Gainers: Most cement companies delivered positive returns during the April-June quarter:
- Burnpur Cement: +78%
- Panyam Cements & Mineral: +55%
- KCP: +40%
- Orient Cement: +40%
- The India Cements: +38%
- UltraTech Cement: +20%
- Others: Ambuja Cements, Shree Cement, JK Cement, ACC, The Ramco Cements, and JK Lakshmi Cement gained between 1% and 10%.
- Decliners: Prism Johnson, Dalmia Bharat, Star Cement, and Shri Keshav Cements & Infra declined up to 8%.
Market Consolidation:
- Acquisitions: Recent acquisitions like those of Sanghi Industries, Kesoram, Penna, and India Cements have driven a rally in cement stocks over the past three months.
- Top Picks: Centrum Broking favors stocks like Ambuja, Birla Corp, and Nuvoco.
- Positive Outlook: Sharekhan is optimistic about UltraTech, Shree Cement, The Ramco Cements, Dalmia Bharat, Grasim Industries, and JK Lakshmi Cement.
Future Projections:
- FY25 Demand: Demand is expected to pick up post-H2FY25, driven by public and private capital expenditures and a resurgence in the rural sector.
- Price Increases: Cement prices may rise post-Q2FY25 as demand improves with increased government spending on infrastructure and housing.
- Consolidation: Ongoing industry consolidation may delay greenfield capacity additions, potentially improving pricing discipline.
Cement sector Q1FY25 challenges
Brokerage Insights:
- Nirmal Bang Securities: They expect an 8.5-9% demand growth in FY25 and foresee a decline in EBITDA per tonne to Rs 928 due to the model code of conduct ahead of general elections, extreme heat, and labor shortages.Cement sector Q1FY25 challenges.
- Company Projections: ACC is expected to see a 17.1% YoY decline in profit after tax (PAT), Ambuja Cement a 24.5% fall in PAT, while Birla Corporation is anticipated to post a 142.9% YoY growth in PAT despite a 2.3% revenue decline in Q1FY25.
conclusion
The cement sector is expected to see modest revenue and profit growth in Q1FY25 due to weak demand and pricing pressures caused by factors like general elections, labor shortages, heat waves, and monsoons. Analysts predict a slight increase in sales volume and EBITDA per tonne decline. Regional demand varies, with some areas showing contraction.Cement sector Q1FY25 challenges. Major companies are expected to report significant profit declines, except for JK Lakshmi Cement. Share prices have shown mixed results, and recent acquisitions have driven a rally in cement stocks. Demand is anticipated to improve post-H2FY25 with increased public and private capital expenditures.
Our assumption on this,
If the cement sector experiences weak demand, the following stakeholders are likely to be affected:
Losers:
- Cement Companies:
- Reduced Revenue and Profit Margins: Lower demand leads to reduced sales volumes, which directly impacts revenue. Intense competition to maintain market share can further squeeze profit margins.
- Shareholders and Investors: Declining profits can lead to a drop in stock prices, negatively affecting shareholders’ investments.
- Employees: Potential layoffs or reduced bonuses and salary increments due to cost-cutting measures in response to lower revenue.
- Suppliers and Contractors:
- Lower Orders: Suppliers of raw materials (like limestone, gypsum, and fly ash) and contractors (who provide services to cement companies) may see reduced orders and, consequently, lower revenues.
- Infrastructure and Construction Companies:
- Project Delays or Cancellations: Weak demand for cement can signal a slowdown in construction and infrastructure projects, leading to delays or cancellations.
Gainers:
- Consumers and Builders:
- Lower Prices: With weak demand, cement companies might lower prices to attract buyers, benefiting consumers and builders with reduced construction costs.
- Alternative Building Material Suppliers:
- Increased Demand: Suppliers of alternative building materials (like steel, wood, or composites) might see increased demand as construction companies look for cost-effective substitutes.
- Housing Sector:
- Affordable Housing: Lower cement prices can reduce the cost of building homes, potentially benefiting the affordable housing segment and homebuyers.
- Government Projects:
- Budget Efficiency: Government infrastructure projects might benefit from lower construction costs, allowing more efficient use of budget allocations.
In summary, while cement companies and their direct stakeholders might suffer from weak demand, consumers, builders, and alternative material suppliers could potentially gain from the situation.
Cement sector Q1FY25 challenges
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