Construction Industry News
Building on the strong development of the last two fiscal years, Indias cement demand is expected to grow 10-12% YoY to ~440 million tonnes in FY2024, driven by a sharp decline in the infrastructure segment.
Combined with stable cement prices and declining power and fuel costs, manufacturers operating profits are expected to recover by ~Rs 200 per tonne, compared to a multi-year low of Rs 770 per tonne in the last fiscal year.
This growth in demand and recovery in margins will boost cash flow and keep credit profiles stable. This is demonstrated by a CRISIL Ratings analysis of 21 cement manufacturers, which represent 90% of the national sales volume.
Government spending on infrastructure development, which accounts for around 30% of annual cement sales, will boost demand. The allocation in the Union Budget for core infrastructure sectors has increased by 38% this financial year3, and actual expenditure has come forward substantially. Until July 2023, expenses amounted to no less than 40% of this years budget.
The residential segment, which accounts for around 55% of cement demand, is expected to witness steady growth thanks to healthy growth in rural housing and urban real estate execution. The governments continued focus on affordable housing under the Pradhan Mantri Awas Yojana will also support demand.
Our channel checks show that cement demand grew 13-15% in the first half of this fiscal year, driven by a strong first quarter and a healthy second quarter, despite some seasonal weakness due to monsoon.
Koustav Mazumdar, associate director of research at CRISIL Market Intelligence and Analytics, said: “Demand growth could moderate to 7-9% in the second half of this fiscal given the high base and given that the governments capital expenditure central could experience some slowdown as it progresses. The general elections are approaching. The delayed and uneven monsoon could lead to some decline in demand for rural housing. The limited availability of labor in the third quarter, with elections in five states, will also play a role. However, a strong first half will support solid double-digit growth in this fiscal year.”
Rising demand for cement will drive sales growth in this fiscal year as pan-India cement prices, which fell by around 2.5% between April and August 2023, have seen a decline recently.
In addition to continued achievements, manufacturers are expected to get some respite on the cost front after a difficult fiscal past. Prices of imported petcoke and non-coking coal (the main fuel used to make cement) have fallen by 35% to 50% this fiscal year through August from their last fiscal average.
Naveen Vaidyanathan, director, Crisil Ratings Limited, said: “Power and fuel costs, which account for 30-35% of total production costs, will follow the trend of declining petcoke and coal prices. carbon with a delay effect. For this fiscal, power and fuel costs are likely to reduce by Rs 200-250 per tonne annually. This will improve per tonne profitability to Rs 950-975 in this fiscal year after an eight-year low of Rs 770 during the last fiscal year.”
349
689
249
599
162
252
3987
0
344
799
349
689
399
789
2966
5339
1439
2899
210
249
199
299
249
999
9020
0
