The massive infrastructure spending by the Indian government towards building roads, railway lines and power, among others, will boost cement demand by 10-12 percent this fiscal, according to a report. The Centre has increased its budget allocation for infrastructure, such as roads, railway lines/stations, power, including renewables, urban infra, telecom, ports, airports, and water works, by Rs 1.6 lakh crore to Rs 5.9 lakh crore for fiscal 2024 from a revised estimate of Rs 4.3 lakh crore for fiscal 2023.
Continuing the robust growth of the past two fiscals, cement demand is likely to grow 10-12 percent year-on-year to 440 million tonnes in fiscal 2024, driven by strong offtake from the infrastructure segment, as per the report. Cement demand grew by 12 percent in fiscal 2023 and by 8 percent in fiscal 2022.
Combined with stable cement prices and softening power and fuel costs, the operating profit of cement manufacturers is expected to recover by Rs 200/tonne from a multi-year low of Rs 770/tonne last fiscal, the report said.
The projected demand growth and margin rebound will spur cash accrual and keep the credit profiles stable of the 21 companies, accounting for 90 percent of domestic sales volume.
One of the major drivers of demand will continue to be government spending on infrastructure, which accounts for 30 percent of annual cement sales, the report noted. The housing segment, which accounts for 55 percent of cement demand, is expected to see steady growth due to healthy traction in rural housing and urban realty execution. The agency’s channel checks indicate cement demand growing by 13-15% 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.
Rising demand will aid revenue growth as pan-India cement prices, which dipped 2.5 percent 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 percent this fiscal through August from their last fiscal average.
According to Crisil Ratings director Naveen Vaidyanathan, power and fuel costs, which constitute 30-35 percent 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 year-on-year. This will improve per-tonne profitability to Rs 950-975 this fiscal after the eight-year low of Rs 770 seen last fiscal.
