Continuing the growth recorded during the past two fiscals, India’s cement demand will grow 10-12 per cent on-year to ~440 million tonne in fiscal 2024, said a CRISIL Ratings analysis. The report stated that this growth will be driven by strong offtake from the infrastructure segment.
Combined with stable cement prices and softening power and fuel costs, operating profit of manufacturers is also expected to recover by ~Rs 200 per tonne from a multi-year low of Rs 770 per tonne last fiscal. The demand growth and margin rebound will spur cash accrual and keep credit profiles stable, it said. CRISIL Ratings analysed 21 cement makers, accounting for 90 per cent of domestic sales volume to reach the conclusions.
The demand, it said, will be driven by government spending on infrastructure development which accounts for ~30 per cent of annual cement sales. “The allocation in the Union Budget for core infrastructure sectors has shot up 38 per cent on-year this fiscal, with actual spending substantially front-loaded. Till July 2023, spending was a robust 40 per cent of the budget for this fiscal,” the report said.
Further, the housing segment, which accounts for ~55 per cent of the cement demand, is expected to see steady growth owing to healthy traction in rural housing and urban real estate execution. Continued government focus on affordable housing under the Pradhan Mantri Awas Yojana will also support demand.
“Our channel checks indicate cement demand growth was 13-15 per cent in the first half of this fiscal, driven by a strong first quarter and a healthy second quarter, despite some seasonal weakness due to monsoon,” the report stated.
Koustav Mazumdar, Associate Director – Research, CRISIL Market Intelligence and Analytics, said, “Demand growth may moderate to 7-9 per cent in the second half of this fiscal given the high base and as the central government capital expenditure could witness some slowdown with the general elections approaching. The delayed and uneven monsoon could cause some pullback in rural housing demand. Constrained availability of labour during the third quarter, as five states go into elections, will also play a role. However, a strong first half will support a robust double-digit growth this fiscal.”
The rising demand will further aid revenue growth this fiscal as pan India cement prices, which had dipped ~2.5 per cent during April-August 2023, have seen a pullback recently. Besides this, manufacturers are expected to get a breather on the cost front after a challenging last fiscal. Prices of petcoke and imported non-coking coal have slid 35-50 per cent this fiscal through August from their last fiscal average. The two are the key fuel used for making cement.
Naveen Vaidyanathan, Director – Crisil Ratings Limited, said, “Power and fuel costs, which constitute 30-35 per cent of the total production cost, will follow the trend of falling petcoke and coal prices with a lag effect. For this fiscal, power and fuel costs are likely to be lower by Rs 200-250 per tonne on-year. This will improve per-tonne profitability4 to Rs 950-975 this fiscal, after the eight-year low of Rs 770 seen last fiscal.”
The rebound in profitability and cash accrual will keep the sector’s leverage (measured as net debt to Ebitda) and interest coverage in a comfortable range of 1.1-1.2x and 7-8x (vs 1.2x and 6x in fiscal 2023), respectively, this fiscal, which will keep credit profiles stable, CRISIL Ratings said.