Cement sector: Analysts note ‘unusual’ quarter
Expect healthy year-on-year growth in margins in Q4, but sequential decline
The quarter Januarymarch 2024, analysts note, was an unusual one for the cement sector.
While price rise is the norm, cement prices, on average, declined despite growth in volumes. Margins for the quarter, analysts said, may see a healthy year-on-year rise but decline sequentially. ICICI Securities, Motilal Oswal, Nuvama, and Antique expect earnings before interest, tax, depreciation and amortisation (Ebitda) for their universe to grow in the range 19-28 per cent from a year ago.
Volumes, similarly, are expected to rise in the range 8-10 per cent. Analysts with ICICI Securities in their note said they estimate industry volumes in Q4FY24 to have grown 6-7 per cent against 9 per cent for the nine months of FY24. Company-wise, they expect Ambuja Cements and JK Cement to report the highest growth in volumes for the period at 15 per cent. ICICI Securities titled its note “an unusual busy season”.
Analysts with Nuvama also noted: “Historically, Q4 is the strongest quarter for the industry in terms of volume growth with prices remaining rangebound. However, owing to heightened competitive intensity, prices (across the country) plunged 5 per cent quarter on quarter.”
Reflective of the price trend, Nuvama expects margins for cement companies to improve due to a lower base but fall in equal measure sequentially by 200 basis points each. Analysts at Antique Stock Broking expect a similar trend for Q4FY24. They noted: “Average Ebitda/ tonne may decline ~100/tonne QOQ, however, improve by ~150/tonne YOY to ~1,070/tonne for our coverage universe.” They added lower realisations might partially be offset by the benefits of operating leverage and lower fuel cost. Motilal Oswal expects market leader Ultratech Cement to report an 11 per cent rise in volumes and a modest rise in Ebitda/tonne at ~1,069 against ~1,049 a year ago.
Starting April, cement companies announced price increases for different markets.
Nuvama in its note added: “Cement prices declined continuously for five months after price hikes taken in Sepoct’23; realisations in Q4FY24 are expected to plunge 5 percent Q-O-Q despite a seasonally strong quarter.”
The analysts remained hopeful that announcements of price increases in April would provide a breather to the industry.
Similarly, analysts with ICICI Securities noted pricing volatility might remain, given the huge capacity addition.
The top four cement makers in India, according to company statements, are likely to add more than 40 million tonnes of capacity in FY25.