Difficult quarter for the industry: Here is what to expect from Q1 results of cement majors

Due to weak demand and pricing pressure, the cement sector may report tepid revenue and profit growth for the quarter ended June 2024. Market watchers believe that general elections, labour shortages, severe heat waves and timely monsoons may result in weak cement demand. Overall, competition for market share is likely to keep margins under pressure during the quarter.

What to expect?

An assessment by Sharekhan shows that sales volume growth of the sector is expected to remain soft at 4.5% YoY. On the other hand, weighted average EBITDA per tonne is expected to decline by 3.4% YoY to Rs 884, as limited savings from power & fuel and diesel prices are unlikely to offset the weak realisations and negative operating leverage.

Overall, the brokerage added that the sector's operating profit is expected to register marginal 1% YoY growth and net profit is expected to decline by 11.3% YoY.

Centrum Broking expects cement demand for the industry to contract on YoY basis by 3-4%. “Demand across the west, east and central region was steady whereas north and south is likely to report contraction. Infra activity was weak owing to general elections but housing demand surprised positively, so we expect better contribution from the trade segment,” Centrum Broking said.

Sharekhan sees a 32.7% and 21.1% fall in net profit of Ambuja Cements and ACC, respectively, in Q1FY25. It also projected a 70.80% decline in the net profit of Grasim in Q1FY25, 52.50% drop in The Ramco Cements, 17.8% fall in Dalmia Bharat and 1.1% fall in UltraTech.

“Weak operating margins, coupled with increased interest and depreciation are expected to impact the net earnings of Grasim Industries negatively. Similarly, weak operational performance is anticipated to result in a year-over-year decline in the net earnings of The Ramco Cements,” Sharekhan said. On the other hand, it expects a 33.10% rise in net profit of JK Lakshmi Cement.

Share price movement

Most of the cement companies delivered positive return to investors during the April-June quarter. For instance, Burnpur Cement gained the most 78%. It was followed by Panyam Cements & Mineral (up 55%), KCP (up 40%) and Orient Cement (up 40%). Among the cement majors, The India Cements and UltraTech Cement gained 38% and 20%, respectively. Ambuja Cements, Shree Cement, JK Cement, ACC, The Ramco Cements and JK Lakshmi Cement also gained somewhere between 1% and 10% during the April-June quarter.

On the other hand, shares of Prism Johnson, Dalmia Bharat, Star Cement and Shri Keshav Cements & Infra declined up to 8% during the same period.

“Cement stocks have rallied over the past 3 months on account of spate of acquisitions like Sanghi Industries, Kesoram, Penna and India Cements. We expect further consolidation in the market as financially challenged companies are likely to exit given interest from multiple buyers. We remain selective in stocks with Ambuja, Birla Corp and Nuvoco as our top picks,” Centrum Broking said.

Sharekhan is positive on the sector with a selective preference for UltraTech, Shree Cement, The Ramco Cements, Dalmia Bharat, Grasim Industries and JK Lakshmi Cement.

Focus on capex, Union Budget

In FY25, demand is expected to pick up post-H2FY25, led by public and private capex ahead of budget allocation for infrastructure and a resurgence in the rural sector.

Sharekhan believes that cement prices may rise post-Q2FY2025 as the demand environment revives during the second half of FY25 on the back of the kickstart of government spending on infrastructure and housing-led demand.

“In FY25, demand is expected to grow by 8.5-9%,” Nirmal Bang Securities said in a report.

Further, there are expectations that the ongoing consolidation in the industry may result in delays in greenfield capacity additions and improve upon pricing discipline in the sector.

Nirmal Bang Securities expects EBITDA per tonne of the companies under their coverage to decelerate to Rs 928 per tonne from Rs 1,034 per tonne reported in Q4FY24 owing to the implementation of model code of conduct ahead of general elections, extreme heat and labour shortage. The brokerage sees a 17.1% YoY decline in profit after tax of ACC and a 24.5% fall in PAT of Ambuja Cement. On the other hand, it believes that Birla Corporation may post 142.9% YoY growth in PAT despite a 2.3% fall in revenue in Q1FY25.