The share prices of UltraTech Cement, ACC, and Ambuja Cements have increased 23–46% in the last year, reflecting high investor confidence in the face of a solid demand forecast.
Notwithstanding a robust demand forecast for FY25, India Ratings asserts that costs are crucial to cement companies’ profitability.
Here are 5 key reasons for Neutral outlook-
Moderate Growth Rate
According to India Ratings, the demand for cement will increase by 5% to 7% in FY25. This is less than the projected 9% for FY25.
India Ratings stated that while strong demand for infrastructure and consistent demand from the residential and commercial sectors would help cement demand expand, most segment growth would not reach FY23–FY24 levels.
Increased Capacity Additions
According to India Ratings, FY25 is likely to have the most capacity addition since FY10; as a result, capacity utilisations are predicted to stay below 70%.
In accordance with the India Ratings, around 75% of the 160 million tonnes of planned expansion is really expected to begin operations between FY24 and FY26, with about 45 million tonnes of capacity expected to begin operations in FY25 alone.
Central India to witness decline in utilisations
Based on India Ratings, the west may see an increase in usage year over year, but central India’s substantial supply pipeline is anticipated to have an adverse effect on the region’s otherwise robust utilisations in the near future. East India has experienced the fastest rate of capacity expansion when considering limestone deposits and string demand.
Surge in Consolidation
India Ratings claims that considering the growing rivalry for market share, this was to be expected. Ind-Ra predicts that the industry will see more consolidation in the near to medium term since big firms’ ambitious medium-term capacity ambitions are unlikely to be met naturally.
Profitability may decrease
The ratings now projects that cement businesses’ Ebitda per tonne will drop to ₹900–950 per mt in FY25 due to reduced realizations, after rising to just over Rs1,000 a tonne in FY24 from ₹850 a tonne in FY23 due to the softening of fuel costs.
Disclaimer: The suggestions and opinions are those of certain analysts. Consult with licensed professionals before making any financial decisions.
