Cement demand in India will grow stronger in the next fiscal year 2023-24, helped by the infrastructure push of Union Budget 2023. Most of this demand will come from construction of roads, and affordable housing in rural areas, Crisil said in a research note. Also, while cement companies’ operating margins have been under pressure due to rising input costs, those are likely to moderate, improving margins from here, the report said.
How much cement will be sold in India
Cement demand will grow at 7- 9 per cent to ~425 million tonne (MT) in fiscal 2024. The demand already grew 11 per cent on-year in the first 10 months of this fiscal, driven by rapid execution in infrastructure projects and strong traction in real estate and rural affordable housing segments. This momentum will likely continue in the remaining months of this fiscal; however, a price increase may play spoilsport, Crisil said. Cement prices were hiked in north India by Rs 10-20/bag in the last few days and by Rs 5-10/bag in the east/central regions and a few markets in the south, according to a Jefferies India report.
How much profits will cement makers make
With the prices of key inputs including coal and pet coke, the outlook on cement makers’ operating margin remains under pressure, and this will have a bearing on the credit risk profiles of players in the segment. The disparity in hike in cement prices and cost pressures cut the operating margin to ~13.6 per cent over the first 9 months of this fiscal. But the margins might improve going ahead with international petcoke prices beginning to ease since the second quarter of this fiscal and further in the third quarter, in tandem with crude oil prices. Domestic petcoke prices too have followed suit.
Also, since fiscal 2021 there has been ~80 per cent rise in power and fuel cost, which comprises 30-35 per cent of production cost. “A meaningful recovery in operating margin, however, will depend on sustained softening of fuel prices. Conversely, an increase in input prices could delay recovery and can impact both margins and credit profiles of cement players,” said Koustav Mazumdar, Associate Director – Research, CRISIL Market Intelligence and Analytics.
What’s leading to cement demand rise
The highest traction for cement is expected from roads with the total outlay for the Ministry of Road Transport and Highways and the National Highways Authority of India rising 25 per cent and 14 per cent, respectively, on-year, said CRISIL. Further, the outlay of affordable rural housing under the government’s Pradhan Mantri Awas Yojana – Gramin (PMAY-G) has also grown 12.5 per cent. “Strong demand is likely to lead to incremental sales volume of 30-35 MT in fiscal 2024 after a cumulative rise of 68 MT over fiscals 2022 and 2023. This translates into a demand growth of 30 per cent since fiscal 2021, taking the total volume to ~425 MT in fiscal 2024,” said Hetal Gandhi, Director – Research, CRISIL Market Intelligence and Analytics.