India's cement sector profitability (EBITDA/t) may bottom out by the 2QFY23 before reaching new highs by FY25, according to Antique Research (AR).
The Indian stockbroking company cites in its latest report that companies in its coverage will see EBITDA/t rise from INR970/t (US$11.77/t) in FY23e to INR1320/t in the FY25e. Declining fuel costs by around 30 per cent from the peak, improved demand led by urban housing, and higher government infrastructure spending (up by eight per cent CAGR from FY22-25e) are the main causes of the EBITDA/t rise estimates. Savings initiatives and the consolidation of Adani Group will also lead to EBITDA/t improvements, claims AR.
AR states that more than 100Mta of capacity is expected to be added in India over the next 3-4 years, although this could be offset with similar demand over the same period. In addition, around 65 per cent capacity additions by the top four cement groups may lead to further consolidation in the market, according to AR. The North and West regions of India are predicted to see minimal capacity additions over the FY23-25e and are lower risk regions, adds AR.
Meanwhile, AR expects cement volumes to grow by mid-single digits MoM and in mid-teens YoY on a low base in September 2022 as construction activities gain momentum as the monsoon recedes. In September 2022, average pan-Indian cement prices rose by 2-3 per cent MoM led by the East and Western regions. Dealer checks suggest cement producers may raise prices across all regions with effect from October 2022. In the South producers are reportedly contemplating price rises of INR30-40/bag (US$36-49), claims AR.
