Union Budget 2024 offered only a marginal boost to cement demand, with higher housing capex and a shift in road capex composition likely to help East and South based players, Nomura India said. Increased allocation to housing may add further 10MT volumes, it said while suggesting Ultratech Cement Ltd has the highest volume share in both Bihar and Eastern India markets, followed by Ambuja Cements consolidated (Adani Cement) and Nuvoco Vistas Corporation Ltd.
"While Ultratech and Ramco have the highest installed capacity share in Andhra Pradesh and the Southern region, increased capex spend in these regions should bode well for these players," Nomura India said.
To be sure, there was no change in the headline numbers for infrastructure capex against what was outlined in the interim budget in February for key ministries. Also the government’s allocation to welfare schemes such as PMAY-Rural and MNREGA too was unchanged from the interim Budget.
Development of the Eastern region (especially Bihar) and Andhra Pradesh was a key theme in the FY25 Union Budget. Under Purvodaya, the government announced Rs 26,000 crore worth of road connectivity projects in Bihar, namely: the Patna-Purnea Expressway, the Buxar-Bhagalpur Expressway, Bodhgaya, Rajgir, Vaishali and Darbhanga spurs, and an additional two-lane bridge over the river Ganga at Buxar.
"While the headline numbers for road capex in FY25 are unchanged compared with the interim budget, the focus of projects has shifted to the Eastern region. Furthermore, under the Andhra Pradesh Reorganization Act, the government has allocated Rs 15,000 crore for FY25F for the development of the region. We estimate around 4MT incremental cement volumes from the Rs 26,000 crore road connectivity project alone. These regions have suffered in the last couple of years due to a lack of state-funded projects," Nomura India said.
Increased focus by the central government bodes well for regional cement players, it said.
That said, allocation to PMAY-Urban got increased 8 per cent, largely on account of the Rs 4000 crore Credit-Linked Subsidy Scheme (CLSS), Nomura India said.
"Based on estimated cement intensity, and assuming a zero per cent increase in cement prices in FY25F, we project a 29 per cent and 9 per cent increase in cement demand from government capex and welfare programmes vs FY24RE and FY25(I)BE, respectively.
The brokerage said this budget seems to support over 8 per cent overall volume growth expectation in a post- election year. Nomura India is modelling in 5.1 per cent YoY volume growth in FY25.
Nomura India said it remains positive on the sector largely owing to long-term tailwinds, such as higher volume growth than in the previous decade, lower operating costs driven by moderating fuel cost and a better pricing environment resulting from the consolidation.
"The sector currently trades at an 18 per cent premium to its three-year average one-year forward EV/Ebitda. We prefer Ambuja Cements (Buy), Shree (Buy), Ultratech (Buy), Ramco (Buy) and Nuvoco (Buy). We maintain Reduce on ACC (Reduce) and Dalmia Bharat (Reduce)," Nomura India.