According to a study, the government’s significant infrastructure investment in roads, railway lines, and power generation, among other things, would increase cement consumption by 10-12% this fiscal year. The Centre has increased its infrastructure budget allocation for fiscal 2024 by Rs 1.6 lakh crore to Rs 5.9 lakh crore, up from a revised estimate of Rs 4.3 lakh crore for fiscal 2023.
In fiscal 2024, cement demand is expected to expand 10-12 percent year on year to 440 million tonnes, backed by high offtake from the infrastructure sector, according to Crisil Ratings in a report Friday.
Cement demand increased by 12% in fiscal 2023 and 8% in fiscal 2022.
With steady cement prices and lower power and fuel costs, cement makers’ operating profit is expected to improve by Rs 200/tonne from a multi-year low of Rs 770/tonne last fiscal, according to the research.
The anticipated demand increase and margin recovery will drive cash accrual and maintain the credit profiles of the 21 businesses, which account for 90% of domestic sales volume, constant.
One of the major drivers of demand will continue to be government infrastructure spending, which accounts for 30% of annual cement sales, according to the report, noting that budget allocation for core infrastructure sectors has increased 38% year on year this fiscal, with actual spending significantly front-loaded. Until July 2023, expenditure was a solid 40% of the planned amount.
Housing, which represents 55% of cement demand, is predicted to rise steadily because of strong momentum in rural housing and urban realty execution. The government’s continued emphasis on affordable homes will help stimulate demand.
According to the agency’s channel inspections, cement demand increased by 13-15 percent in the first half of this fiscal year, thanks to a good first quarter and a solid second quarter, despite some seasonal downturn due to the monsoon.
According to Crisil Ratings associate director Koustav Mazumdar, given the large base, demand growth may moderate to 7-9% in the second half, and the Centre’s capex may decrease as the general elections near.
However, the research warns that the delayed and uneven monsoons may trigger a slowdown in rural home demand. Constrained labor availability during the third quarter, when five states have elections, will also play a role. A solid first half, on the other hand, will underpin substantial double-digit growth this fiscal year.
Rising demand would help revenue growth since pan-India cement prices, which fell 2.5 percent between April and August 2023, have lately retreated, according to the research.
Aside from consistent realization, manufacturers are anticipated to take a respite on the expense front following a difficult fiscal year. Prices of pet coke and imported non-coking coal, the two primary fuels used in cement production, have fallen by 35-50 percent this fiscal year through August compared to the previous fiscal year’s average.
According to Crisil Ratings director Naveen Vaidyanathan, electricity and fuel costs, which account for 30-35 percent of production costs, would lag behind the trend of declining pet coke and coal prices. Power and fuel costs are expected to be reduced this fiscal year by Rs 200-250/tonne. This would increase per-tonne profitability to Rs 950-975 this fiscal year, up from an eight-year low of Rs 770 last year.
