The Indian cement industry is in revival mode with volume growth, stable demand and the recent price hike, stated a report by InCred Equities, while maintaining that profitability is expected to rise further. Another report by Motilal Oswal Financial Services Ltd (MOFSL) had also stated the cement industry is expected to witness a robust recovery in the second half of FY25, driven by pent-up demand, a rebound in government capex, and sustained momentum in the real estate and housing sectors.
The cement demand, JM Financial said, is expected to remain strong in coming years with a growth of 7-8 per cent CAGR over FY25E-27E. The report had stated that after a brief slowdown anticipated in FY25, the sector is expected to witness strong growth, driven by positive demand fundamentals and structural changes within the industry.
A healthy volume growth in Q3
InCred Equities said, “We believe the industry clocked a YoY growth of ~6-7 per cent in Q3FY25F based on our analysis of top listed companies, where our coverage universe grew by >9 per cent yoy.” In its coverage stocks, Ultratech Cement and Ambuja Cements (consol.) outperformed the industry with double-digit growth, and also gained market share. It further added that Shree Cement’s strategic focus on profitable volume led to volume decline of around 1 per cent and Dalmia Bharat’s volume fell 1.5 per cent YoY due to discontinuation of JPA assets tolling arrangement; however, it benefited JK Cement (with increased volume in central India). Management commentaries, the brokerage report stated, highlighted that overall demand improved in Q3, as seen in early trends visible from government spending in some regions. Most players expect cement demand to grow by 6-7 per cent in Q4FY25F and display a similar growth in FY26F.
Demand boost favourable for prices
The average realization improved on QoQ basis by around 1 per cent in Q3FY25, for the first time since Q3FY24, with prices showing improvement across regions barring South India. “In our coverage universe, Dalmia Bharat posted the highest approximately 3 per cent QoQ improvement in blended realization followed by Ultratech Cement/JK Cement at 1.6%/1.4%, respectively. Companies remain optimistic about pricing going ahead, with strong demand expected in Q4FY25F,” InCred Equities said.
As of Dec’24, Yes Securities had stated, all-India average cement prices stand at Rs 366 (an increase of Rs 8/bag) of 50 kg bag as compared to Nov’24. The central region witnessed the highest price hike of Rs 11/bag followed by south/north/ east of Rs 8/bag while the least price hike of Rs 5/bag in western region. Since the start of December, cement dealers have undertaken incremental price hikes, following four to five months of flat prices, that reduced dealer margins and impacted the profitability of cement manufacturers. The price hike was attributed to increased demand from the real estate sector, driven by better labour availability post-festive season, and an increase in orders from the infrastructure sector due to government push.
InCred Equities said, “We believe the profitability, after bottoming out in the previous quarter, has started to show an improvement and is expected to be on the same path going ahead, with the current fuel cost environment, improving efficiency in cost savings and the likely uptick in cement prices and demand.”
Q4FY25 will be better, the brokerage firm said, with the government-targeted capex to revive and quite visible already in Dec 2024 spending. “We retain our Overweight stance on the sector, with Ultratech Cement and Ambuja Cements as our top stock picks,” it said.
InCred Equities said that leading players like Ultratech Cement, Adani Cements (ACC + Ambuja Cements) maintained their positive stance on cement demand in India and expect the industry to grow by an average 7-9 per cent in Q4FY25F, remaining confident on outperforming the industry growth rate. However, it added, other players like JK Cement, JK Lakshmi Cement, and Birla Corporation are expected to grow in line with the industry in H2FY25F.