ICRA expects cement volumes to rise by a healthy 9-10% in FY2024 supported by demand from infrastructure and urban housing sectors. In H1 FY2024, the volumes increased by 11-12% YoY. Nevertheless, the below normal monsoons could impact the overall crop output in 2023, adversely impacting farm incomes and demand for rural housing in some markets. Moreover, with the upcoming State Elections, the release of funds towards ongoing infra projects may slow down, posing some downside risks to cement volume off-take in H2 FY2024. The cement prices in FY2024 are expected to sustain at previous-year levels.

Abhishek Lahoti, Assistant Vice President and Sector Head, Corporate Ratings, ICRA, said: “With the softening of cost-side pressures – primarily power and fuel costs – the OPBIDTA/MT is expected to improve by 14-18% YoY to Rs. 900-950/MT. These costs, which account for 30 – 35% of the overall costs for the cement company, are expected to decline YoY in FY2024 backed by lower coal and pet-coke prices. This is reflected in a moderation in the prices by 37% YoY in H1 FY2024. This, coupled with increasing focus on green power, is expected to improve the operating margins for ICRA’s sample set by 260-310 bps to 16.0-16.5% in FY2024.”

Yearly Trends in Cement Volumes

ICRA ResearchSource: Office of Economic Advisor, ICRA Research

The increasing focus on green power is likely to lower the cement industry’s dependence on high-cost thermal power and grid for power requirements, thereby reducing the operating costs. Assuming thermal power cost at Rs 6.5 /unit, waste heat recovery system (WHRS) power cost at Rs 0.75 /unit and solar power cost at Rs 4.5/unit, a 25% replacement of thermal power consumption by green power could lead to cost savings of around 15-18%, while also reducing the carbon footprint.

Supported by healthy demand prospects, the capacity addition in the cement industry is estimated at 63-70 million MT during FY’24-FY’25, of which around 33-37 million MT will be added in FY’24 (FY 2023: 27 MTPA) the highest addition in the last five years. The Eastern and Central regions are expected to lead the expansion.

“The credit profile of cement producers is expected to remain stable, driven by a healthy growth in operating income, expected improvement in operating margins and comfortable leverage metrics. Although the debt dependence is expected to remain high to fund the ongoing capex programme, the leverage metrics of the cement companies, as measured by Total Debt/OPBIDTA, is expected to improve to 1.35-1.4x in FY’24 compared to previous-year levels of 1.6x, supported by increase in OPBIDTA. The coverage metrics are expected to improve with the DSCR improving to 2.25-2.3x in FY’24 from 2.0x in FY’23,” added Abhishek Lahoti.
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