Indian cement sector to face revenue decline in Q2FY2025 amid weak demand

India's cement sector is expected to witness a 7.2 per cent year-on-year (YoY) drop in revenues for Q2FY25, driven by an 8.7 per cent YoY fall in realisations, according to a report by Sharekhan, a leading retail brokerage firm in India. The report highlights that despite a marginal volume growth of 1.7 per cent YoY, the sector continues to face weak demand, primarily due to sluggish infrastructure projects and adverse weather conditions.

The monsoon season, combined with a delay in government fund allocation post-elections, has stifled sales volume growth across the industry. Meanwhile, the weighted average EBITDA/t of cement is forecast to plunge by 26.7 per cent YoY (down 22 per cent QoQ) to INR672. This reflects limited cost savings in power, fuel, and diesel prices. The decline in cement realisations, compounded by negative operating leverage, has further pressured profit margins across the sector.

Operating profits are projected to decline by 25.3 per cent YoY (down 24.9 per cent QoQ), while net profits are expected to see a steep fall of 56 per cent YoY (down 53.3 per cent QoQ). Despite efforts by cement companies to implement price hikes from August 2024, weak demand has curtailed the effectiveness of these measures. However, the report suggests that prices may see an uptick as demand improves in H2FY25.

For Grasim Industries, a marginal increase in net earnings is anticipated, buoyed by higher dividend income from UltraTech, though the group’s new business ventures are likely to see a 41.3 per cent YoY dip in operating profits. Sharekhan remains optimistic about the sector, highlighting selective preferences for companies such as UltraTech, Shree Cement, The Ramco Cements, Dalmia Bharat, Grasim Industries, and JK Lakshmi Cement.

Demand growth stunted by monsoons and elections 

A report by Axis Securities echoed concerns over weak cement demand in September 2024, with heavy monsoons and region-specific challenges weighing on both trade and non-trade segments. Despite an improvement from July and August, demand remained below market expectations, hindered by ongoing delays in infrastructure fund allocations. Cement prices, which were at multi-quarter lows, provided limited support to demand growth.

The first quarter of FY25 also presented difficulties, with extreme weather, labour shortages, and disruptions from the general election negatively affecting demand. Historically, election years tend to see a moderation in cement consumption, and this trend appears to be continuing into FY25. Provisional figures from the Office of the Economic Adviser showed a nine per cent growth in cement demand for FY24, but recent months have seen this momentum slow significantly.

As the sector navigates these challenges, recovery is anticipated in the latter half of the fiscal year, contingent on a revival in demand and infrastructure activity.