Commenting on the growth drivers, Ms. Anupama Reddy, Assistant Vice President & Sector Head, Corporate Ratings, ICRA, says, “The rural housing demand is expected to be supported by the robust kharif harvest and continued healthy procurement, supporting farm income. In the affordable housing segment, the pending houses to be completed under PMAY-R at 6.1 million and PMAY-U at 6.3 million by CY2022 and in the urban housing segment, the low home loan rates and demand for more residential space due to shift to hybrid working model are expected to boost residential dwelling unit sales and thereby propel cement demand. The significant pick up in the infrastructure activity backed by the National Infrastructure Pipeline (NIP) is likely to see healthy traction in terms of new project awards and execution in medium term, which is expected to boost cement demand.”
On the profitability of cement companies, while the input costs remain elevated in Q1 FY2022, the ICRA’s sample of twelve listed cement companies, reported the highest ever OPBIDTA/MT in Q1 FY2022 at Rs. 1372/MT driven by an increase in net sales realisation and cost optimisation measures undertaken. The operating margin of the sample is higher by 30 bps Y-o-Y and 170 bps Q-o-Q at 25.8% in Q1 FY2022.
Overall in H1 FY2022, the cement prices were higher by 4% Y-o-Y. This is primarily driven by the increase in input costs - power & fuel and freight expenses over the last few months. On the input costs, the coal prices were higher by 103%, pet coke prices by 87% and diesel prices by 20% on Y-o-Y basis in H1 FY2022. While the revenues of ICRA’s sample are expected to increase by 13% in FY2022 largely supported by volumetric growth, the elevated input costs are likely to exert pressure on operating margins resulting in a margin contraction by around 200-230 bps.
Commenting on capex, Ms. Reddy added, “Capacity additions are expected to increase to around 18-20 MTPA in FY2022 and 27-30 MTPA in FY2023 from around 15 MTPA in FY2021. The Eastern region is expected to lead the expansion and may add around 17 MTPA followed by the Central region at around 13 MTPA during FY2022-FY2023. With the expected increase in demand in FY2022 and FY2023, the utilisation is likely to improve to around 62%-64% from 57% in FY2021, however, the same remains at moderate levels on an expanded base. On the funding of capex, the reliance on debt for new capacity additions in FY2022 is likely to be lower owing to the healthy cash generation and strong liquidity of the cement companies. The debt coverage metrics are expected to remain strong in FY2022.”