According to a report, The massive infra spending by the government towards building roads, railway lines and power, among others, will boost cement demand by 10-12 per cent this fiscal.
The Centre has increased its infrastructure budget allocation for fiscal 2024 by Rs 1.6 lakh crore to Rs 5.9 lakh crore from a revised estimate of Rs 4.3 lakh crore for fiscal 2023 –Such as roads, railway lines/stations, power, including renewables, urban infra, telecom, ports, airports, and water works, among others.
Crisil rating said in a note on Friday that continuing the robust ride of the past two fiscals, cement demand is likely to grow 10-12 per cent year-on-year to 440 million tonne in fiscal 2024, driven by strong offtake from the infrastructure segment.
Cement demand increased by 12 per cent in fiscal 2023 and by 8 per cent in fiscal 2022.
The report said that Combined with stable cement prices and softening power and fuel costs, the operating profit of cement manufacturers is likely to recover by Rs 200/tonne from a multi-year low of Rs 770/tonne last fiscal.
The projected demand growth and margin rebound will spur cash accrual and keep the credit profiles stable of the 21 companies, accounting for 90 per cent of domestic sales volume.
One of the major drivers of demand will continue to be government spending on infrastructure, which accounts for 30 per cent of annual cement sales, the report said, noting the budget allocation for core infrastructure sectors has shot up 38 per cent year-on-year this fiscal, with actual spending substantially front-loaded. Till July 2023, spending was a robust 40 per cent of the budgeted amount.
Due to healthy traction in rural housing and urban realty execution, the housing segment, which accounts for 55 per cent of cement demand is expected to see study growth. Continued government push on affordable housing will also support demand.
The agency’s channel checks indicate cement demand growing by 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 demand growth may moderate to 7-9 per cent in the second half, given the high base, and the Centre’s capex may see some slowdown with the general elections approaching. According to Crisil rating associate director Koustav Mazumdar.
The report, however, cautions that the delayed and uneven monsoons could cause some pullback in rural housing demand. Constrained availability of labour during the third quarter, as five states go to elections, will also play a role. However, a strong first half will support a robust double-digit growth this fiscal.
The report said that rising demand will aid revenue growth as pan-India cement prices, which dipped 2.5 per cent during April-August 2023, have seen a pullback recently.
Apart from steady realisation, manufacturers are expected to get a breather on the cost front after a challenging last fiscal. Prices of pet coke and imported non-coking coal – the two key fuels used for cement making – have slid 35-50 per cent this fiscal through August from their last fiscal average.
According to Crisil Ratings director Naveen Vaidyanathan, power and fuel costs, which constitute 30-35 per cent of the production cost, will follow the trend of falling pet coke and coal prices with a lag effect. For this fiscal, power and fuel cost is likely to be lower by Rs 200-250/tonne YoY. This will improve per-tonne profitability to Rs 950-975 this fiscal after the eight-year low of Rs 770 seen last fiscal.
