Sector Update – Increased Revenue of Cement Companies!

In the first quarter of FY24, cement firms experienced an intriguing surge in revenue and volume growth. What lies ahead for them?

The cement industry in India is quite significant. It makes cement used for constructing buildings, roads, bridges, and other big infrastructure projects. This industry is important for India’s economic growth and a source of employment in several areas of the country.

But did you realise that India is the world’s second-biggest cement maker? The construction sector in India has a lot of room to grow, which will also help the cement industry grow.

Today, we will thoroughly examine how India’s cement industry is doing now and what might happen in the future.

Let’s begin.

What’s Happening?

A recent report from Business Standard states that the cement industry has showcased a largely stable price trend. While the southern region experienced a marginal decrease in cement prices, the northern region witnessed a subtle uptick.

Taking a closer look at the performance of 15 prominent cement companies during the first quarter of FY2024, the figures present a mix of outcomes. These companies collectively marked a remarkable 15% increase in revenue compared to the previous year, accompanied by a robust 17% growth in volume. Moreover, the combined EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation) showed an annual rise of 8.8%, with a steady quarterly uptick of 1.2%.

However, some negative aspects were also observed during this period, including a reduction in earnings and persistent elevated operating expenses. The EBITDA per tonne fell below estimates. Earnings faced a modest decline of 2.7% on a yearly basis and a marginal 0.3% dip quarterly. In parallel, operating expenses only managed to trim down by 1% on a quarterly scale.

Despite these challenges, the report underlines an optimistic sentiment among the companies’ management regarding the future growth trajectory.

What is Driving Growth in the Industry?

1. Infrastructure Growth
The demand for cement becomes clear as we see investments flowing into projects focused on improving and building infrastructure. Given the Indian Government’s strong emphasis on infrastructure development, there is a poised surge in the demand for cement.

2. Real Estate Expansion
India’s real estate sector is on a steady and gradual growth path, positively influencing cement production. As the need for new homes and offices keeps increasing, the demand for cement is also expected to rise significantly.

3. Development of Growing Sectors
The cement sector is experiencing growth thanks to new investments. Particularly, government initiatives like creating smart cities are giving a strong push to the sector, leading to increased demand for cement as a key building material.

4. Price Stability
Stable cement prices are crucial because they motivate people to invest in new projects. The good news is that cement prices have been quite steady in Q1 FY24. This reliability boosts investor confidence and strengthens the entire industry’s prospects. This positive situation sets the stage for consistent growth.

What’s Next?

The demand for cement looks promising, with a projected double-digit growth in FY24, according to Business Standard. This is because increased government spending is set to benefit companies. The Indian cement industry is expected to add about 80 million tonnes (MT) of capacity by FY 2024, thanks to more investment in housing and infrastructure projects, as stated by Crisil Ratings.