Cement Sector Stability: India Ratings Upholds Neutral Outlook Due to 5 Key Factors – Implications for Coin (COIN)

• UltraTech Cement, ACC, Ambuja Cements share prices have seen a significant rise of 23-46% in a year, reflecting strong investor confidence amidst a firm demand outlook.
• India Ratings and Research maintains a neutral outlook on the cement sector for FY25, stating that costs are key to the profitability of cement producers.
• Despite the healthy demand outlook for FY25, the pace of growth is expected to moderate, with cement demand predicted to grow 5%-7% year-on-year.

Investor confidence in cement stocks remains high, despite a neutral outlook from India Ratings and Research. The article explores key reasons for this outlook and the future of the cement sector.

Neutral Outlook on Cement Sector: Key Reasons

The neutral outlook on the cement sector is driven by several factors. Firstly, while cement demand is expected to grow 5%-7% year-on-year for FY25, this is lower than the estimated 9% in FY25. Despite robust infrastructure demand and steady demand from housing and commercial segments, the pace of growth in most segments is expected to be lower than FY23-FY24 levels.

Rising Pace of Capacity Additions

FY25 is set to witness the highest capacity addition since FY10. Cement producers, anticipating strong cement demand in the medium term, have planned significant capacity additions. However, capacity utilizations are expected to remain below 70%.

Regional Utilization Variations

In central India, the large supply pipeline is likely to weigh on the otherwise strong utilizations over the near term. On the other hand, the west could witness a year-on-year improvement. East India has seen the highest pace of capacity additions due to strong demand and limestone deposits, but this will likely weigh on utilisations in the near term.

Consolidation Expected to Rise

FY24 witnessed around 20 million tonnes of Cement capacities being acquired, with the top two players accounting for the bulk of them. This trend is expected to continue in the near-to-medium term, given the aggressive medium-term capacity targets of large players.

Profitability May Dip

Cement prices have remained rangebound with manufacturers eyeing market share gains. However, India Ratings expects the Ebitda per tonne of cement companies to decline in FY25 owing to lower realizations.

Conclusion

While investor confidence in cement stocks remains high, the sector faces several challenges, including moderating growth, rising capacity additions, regional utilization variations, and potential dips in profitability. The future of the cement sector will largely depend on how these factors play out.