Cement sector: 5 Key reasons why India Ratings maintains a neutral outlook for FY25 despite healthy demand

India Ratings and Research however has maintained a neutral outlook on the cement sector for FY25.  Amidst healthy demand outlook for FY25 India Ratings says that costs hold key to profitability of Cement producers.

Here are 5 key reasons for Neutral outlook-

Demand to remain Healthy, Pace of Growth to Moderate

India Ratings expects cement demand to grow 5%-7% year-on-year for FY25. This is lower than estimated 9% in FY25 

Although robust infrastructure demand and a steady demand from the housing and commercial segments would support growth for cement demand, the pace of growth in most segments would be lower than FY23-FY24 levels, said India Ratings.

Further the rating agency adds that Risk also emanate in case of a lower or uneven monsoon which could affect rural spending. The real wage growth in past few years have remained muted as per India Ratings

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Rising pace of Capacity Additions

FY25 is set to witness highest capacity addition since FY10 and per India Ratings and hence Capacity utilisations are expected to remain Below 70%. Cement producers anticipating strong cement demand in the medium term have planned significant capacity additions. 

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India Ratings  believes around 75% of the announced expansion of around 160 million tonnes is actually likely to come on stream over FY24-FY26, with around 45mnt of capacity likely to come on stream in FY25 itself.

Central India to see fall in utilisations

In central India, the large supply pipeline is likely to weigh on the otherwise strong utilisations over the near term , expects India Ratings, while the west could witness a year-on-year improvement. East India has seen hihest pace of capacity additions looking at string demand and limestone deposits. This however will keep weighing on utilisations in the near term while the southern region utilisations would remain at the bottom, expects India Ratings.

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Consolidation expected to rise

FY24 witnessed around 20 million tonne of Cement capacities being acquired  and the top two players accounted for bulk of them.  India Ratings says that this was as per expectations looking at the intensifying competition for market share. Ind-Ra believes the sector is likely to witness further consolidation in the near-to-medium term, given that the aggressive medium-term capacity targets of large players are unlikely to be achieved organically 

Per tonne profitability may dip

 The Cement prices have remained rangebound with manufacturers eyeing market share gains. After recovering to a little over Rs1,000 a tonne in FY24 from ₹850 a tonne in FY23 led by the softening of fuel costs, India Ratins now expects the Ebitda per tonne of cement companies to decline to ₹900-950 per mt in FY25 owing to lower realizations.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions

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Published: 08 May 2024, 05:59 PM IST