The cement sector witnessed strong demand in January and February, though there was some slowdown in demand in parts of March 2023. The pre-election spending continues to boost infrastructure segment demand in multiple states driving overall cement demand growth.
When the industry players report their earnings for the fourth quarter of the last financial year (Q4FY23), sector watchers expect mid-teen volume growth (13-16 percent) for UltraTech Cement, Dalmia, Shree Cement and JK Cement.
Ramco Cement is expected to grow at around 20 percent. The large cement players should dominate and outgrow smaller cement companies.
Companies with capacity additions in the past one year and with southeast regional presence are expected to outperform industry volume growth for FY23, while Adani Cement twins (ACC and Ambuja Cement) will be negatively impacted owing to the Himachal Pradesh plant closure for parts of the past quarter.
Costs are likely to have started a downward spiral and will soften further in quarter four of FY23 due to lower energy costs, better operating leverage and reduced maintenance expenses due to peak season.
This benefit of cost decline is likely to extend for the next few quarters based on current raw material costs and at current energy prices.
Problem is the volume push strategy seems to have depressed prices in quarter four FY23. Channel checks indicate that cement prices at an all-India level have slipped and are likely to be flat to marginally negative sequentially.
Producers in the northern region are likely to report some growth sequentially and are better placed while south region will lag with a sequential decline.
Jefferies sees the energy cost decline and believes that the operating leverage will drive up EBITDA/tonne average by Rs 135/tonne quarter on quarter (QoQ).
Adding that from their coverage EBITDA is likely to be largely stable year on year (YoY) for quarter FY23 after declining 3-44 percent for past six quarters.
There will be a good improvement for most companies on a sequentially basis and particularly for Birla Corp on a low base while for Dalmia Bharat will see a bit of a decline on a high base.
UltraTech is expected to post a solid set and Ramco topline growth will be aided by higher volumes.
Mangesh Bhadang, Sr Vice President-Research, Centrum Broking believes that the industry should deliver double-digit growth in quarter four of FY23.
“Industry should report a double-digit volume growth in quarter four of FY23,” he said.
He likes UltraTech Cement and Ambuja Cement in largecap space.
“From largecap, we like UltraTech and Ambuja and from midcap space we like Birla Corp and Nuvoco, which are more of a value buys wherein we expect that there is going to be some growth as well,” he said.
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