7-8% growth expected in cement sector production

4 Jul 2023 , 10:40 AM

An increase in demand from the housing and infrastructure sectors is expected to drive the domestic cement industry’s volumetric growth to reach 7-8% in FY24, according to research released on Monday by ICRA. The report characterizes the outlook for the sector as ‘stable.’

Furthermore, it is stated that the industry’s operational profits before interest, tax, depreciation, and amortization are projected to increase by 14-18% year-on-year to Rs 900-950 per MT in FY24, thanks to the softening of input costs.

The cement sector is also anticipated to witness capacity additions of 63-69 million metric tonnes (MT) between FY24 and FY25, driven by robust demand prospects. This will result in an additional capacity of around 33-36 million MT in FY24 and approximately 30-33 million MT in FY25.

The report highlights that cement capacity is expected to grow by 6% in FY2024, marking the highest addition in the past five years. ICRA has assigned a ‘stable’ outlook to the cement industry.

The volume offtake is expected to be supported by steady demand from the housing and infrastructure sectors, as well as an increase in industrial investment.

Operating margins are projected to improve as power and fuel prices, which peaked in H1 FY23, declined in H2 FY23 and are expected to further decrease in FY24.

Anupama Reddy, Vice-President and Co-Group Head, Corporate Ratings at ICRA, stated, ‘This should improve the EBITDA margin for the cement sector by 230-270 basis points to 16.3-16.7 percent in FY24.’ However, she cautioned that these margins would remain below those reported during FY17-FY22.

Reddy also raised a concern about the potential negative impact of El Nino conditions on the monsoon in 2023, which could affect rural housing and pose some risks.

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