In India, cement companies are likely to see a 7.2 per cent year-on-year (YoY) fall in revenues in Q2FY2025, led by an 8.7 per cent YoY decline in realisation, while volume growth remains weak at just 1.7 per cent YoY, according to a report by Sharekhan.
The report stated that sales volume growth is expected to remain weak at just 1.7 per cent YoY on sluggish demand from government-led infrastructure projects (time lag for fund allocation post-elections) and heavy monsoons. It also mentioned that weighted average EBITDA/tonne is expected to decline by 26.7 per cent YoY (down 22 per cent QoQ) to Rs 672, as limited savings from power and fuel and diesel prices are unlikely to offset weak realisations and negative operating leverage.
Overall, operating profit is expected to decline by 25.3 per cent YoY (down 24.9 per cent QoQ), and net profit is expected to decline by 56 per cent YoY (down 53.3 per cent QoQ). Cement companies have been initiating price hikes since August 2024 although weak demand has led to partial absorption of the same. However, as cement demand revives during H2FY2025, cement prices may rise.
For Grasim, it expects a marginal growth in net earnings y-o-y led by higher dividend income from UltraTech while continued losses in new businesses are expected to lead to a 41.3 per cent YoY dip in operating profits. “We stay Positive on the sector, continuing our selective preference for UltraTech, Shree Cement, The Ramco Cements, Dalmia Bharat, Grasim Industries and JK Lakshmi Cement,” according to the report.
Weak Cement Demand
The cement demand in September remained below market expectations due to heavy monsoons and region-specific challenges which impacted both trade and non-trade demand, highlighted a report by Axis Securities. The report noted that despite some improvement compared to the sluggish performance in July and August 2024, overall demand for cement failed to meet the anticipated levels.
The report highlighted several key reasons for this demand slowdown. One of the main factors was the delayed allocation of funds for infrastructure projects. This was despite the fact that cement prices were at their lowest in several quarters.
The delayed allocation of funds for the infra segment, heavy monsoons, and region-specific challenges impacted both trade and non-trade demand, despite cement prices being at multi-quarter lows" said the report. Earlier as per the report the first quarter of the current financial year (FY25) was also challenging, with demand being affected by the general election, extreme heat conditions, labour shortages, and unseasonal rains in certain areas.
Historically, cement demand tends to moderate during election years. The report also cited provisional numbers from the Office of the Economic Adviser, which indicated that cement demand grew by 9 per cent in FY24. However, this momentum has slowed down in the current fiscal year, with channel checks showing only a marginal improvement in September compared to the previous two months.
_20241009181634_original_image_25.webp)
