Vinod Behl
Cement companies are embarking on organic and inorganic expansions to gain market share with a focus on increasing volume of sales. According to industry statistics, the cement sector has seen capacity addition of 33MT in FY23. Bloomberg data shows that large cement companies like Ultratech, ACC, Shree Cement, and Dalmia Bharat are likely to report YoY net sales growth of 17.1%, 9.6%, 20.5% and 21.4%. As per industry analysts, volume growth is expected to be highest for Shree Cement at 23% and Dalmia Bharat at 15%, and Ultratech at 9-10% in Q3.
As per India Ratings, the growth rate of cement and steel stood at 12.3% in November 2022. Going forward, cement and steel sectors may well see strong growth on sustained capex with support from the Centre and the States. According to industry analysts, demand for cement is likely to go up 8% by FY25. And the revenue growth of leading cement companies like UltraTech Cement, Dalmia Cement, Ambuja Cement, and Shree Cement, on account of strategic expansion and sound financial health, may well record 15-25% YoY hike in FY24.
Amid rising competition, UltraTech has been in expansion mode; its domestic grey cement sales volume grew 13% YoY to 24.25 MT in Q3 2022. The company’s green energy share went up to about 20%, which includes 208 MW of WHRS and 325 MW of Solar Power. UltraTech commissioned 18MW of WHRS and 7MW of Solar power in Q3 2021. In Q3 2022, it commissioned 5.5MT per annum (MTPA) of new capacity. Work on the second phase of growth of 22.6 MTPA has also commenced. This expansion will give a boost to long-term volume growth.
Five large cement companies with a market share of almost 50% have chalked out big capex plans. Amid margin pressures, the sector will see some churning, especially with the weaker small and medium companies facing challenges of high cost and poor financial health. With the sector seeing further consolidation, long-term prospects will be good for companies having lower logistics cost and strong balance sheets. These large companies with good financial health stand to gain by way of inflows from institutional investors, especially as these investors have increased their stake in these companies in the last couple of years. They also enjoy the benefit of pricing power because of capacity expansion. The growing interest of institutional investors in these large cement manufacturing companies will further strengthen their liquidity, in turn, aiding their expansion plans.
Th construction boom in India, backed by the Government’s mega funding push for infrastructure development, and the Make in India flagship programme for making India a global manufacturing hub, are giving a big push to India’s steel demand. According to the World Steel Association, India’s steel consumption is set to cross 200MT by 2030. Besides domestic consumption, export opportunities to Malaysia, Thailand, Vietnam, and the Middle East are also emerging. Considering this, many steel companies are undertaking capacity expansions. JSW Steel is aggressively scaling up its production; it had recorded the highest ever steel production of 6.14MT in the December quarter.
According to Sheshagiri Rao, Joint Managing Director, JSW Steel, since the company plans to commission about 9MT capacity in FY24, the overall capacity will touch 28.5MT, leading to a huge volume growth in 2024-25. Large-scale capex investments by the Government to create world-class infrastructure and a robust uptick in the residential and commercial real estate, have proved to be major drivers for growth of the steel sector. The expansion plans of the company are paying rich dividends. During the December 2022 quarter, the Dolvi Phase 2 expansion achieved capacity utilisation of 85%. The phase 2 expansion of BPSL to 5 MTPA from 3.5 MTPA remains on track for completion. The 5 MTPA brownfield expansion at Vijaynagar is progressing well towards completion by FY24. Consequently, JSW’s steel production is on rise. Its combined steel production rose by 6.24 MT during the October-December quarter FY 23, and its standalone output increased 20% to 6.06MT.
Besides scaling up its manufacturing capacity, JSW Steel is also planning to manufacture electrical steel through a JV with Japanese companies under the PLI scheme. It is also betting big on its foray into the EV segment. For these expansion plans, JSW Steel has a budget of Rs. 490,000 crore, with Rs 15,000 crore, Rs 20,000 crore, and Rs 14,000 crore to be spent in 2022-23, 2023-24 and 2024-25, respectively.
ArcelorMittal Nippon Steel India has plans to more than triple its capacity to 30MT in the coming decade. South Korean steel maker Posco Holdings and Gautam Adani are exploring the possibility of setting up steel mills in the country.
Interestingly, a number of building material players are entering the paint business, in turn heating up the Rs 60,000 crore domestic paint market, dominated by Asian Paints, Berger Paints, and Nerolac Paints. JK Cement is leveraging its strength in the cement business to ramp up its paint business. It recently acquired a 60% stake in Acro Paints. Prior to this, a leading pipes maker, Astral bought 51% stake of Bangalore-based Gem Paints, while well-known online building material marketplace Infra.Market picked up a 24% share in Shalimar Paints.
JSW, which entered the paint market in 2019, is setting up a new plant with a capacity of 1 lakh kilo litres of decorative paints to carve a strong pan-India position. The company has committed Rs 750 crore of investment into the paint business, and plans to double its revenue to Rs 2,000 crore in FY23. It has one unit each of decorative paints and industrial coatings and is considering setting up a third plant. JSW Steel, which presently has a meagre share of 2% in the decorative paints business, plans to more than double it by taking it to over 5% over the next 2-3 years.
Buoyed by the rising demand, Grasim Industries is doubling its investment in the paints business. The company, which had forayed into the paints business in 2021 with an investment of Rs 5,000 crore, has chalked out ambitious plans to invest Rs 10,000 crore in the business in the next 3 years to emerge as a formidable player in the paints market. In line with its mega plans, the company has been ramping up its paints capacity of 1332 MPLA by commissioning new plants, which will start by the March quarter of FY 2424.
India’s second largest paint company Berger Paints is expected to clock revenue of Rs 10,000 crore in FY 23; it plans to double its revenue over the next 5-6 years. With a revenue of Rs 5,430 crore in H1 FY 23, the company, according to its MD & CEO Abhijit Roy, is well on its course to top Rs. 10,000 crore of revenue this financial year. In order to achieve this ambitious revenue target, the company has lined up plans to considerably scale up its manufacturing capacity by setting up new plants in Uttar Pradesh, Odisha, and West Bengal. In Uttar Pradesh, it will invest up to Rs 1,000 crore for setting up its largest plant, which will largely cater to decorative paints, besides industrial and construction chemicals.
What is interesting is that cement and paint companies are working out plans to develop synergies between cement and paint distribution outlets. As the demand for construction goes up in the pre-election year, with higher spending on urban development, infrastructure, and housing, it will lead to higher demand for construction materials, in turn, aiding their expansion.
