Cement stocks snap six-day losing streak; India Cements soars 10%

The higher demand will mitigate the impact of lower profitability on absolute operating profits and cash accruals of cement makers, cushioning their credit profiles, Crisil Research said

Shares of cement companies traded higher by up to 10 per cent on the BSE in Wednesday's intra-day trade, snapping their six-day declining streak. India Cements, Star Cement, Ramco Cement, Ambuja Cements, ACC, and UltraTech Cement were up more than 1 per cent. In comparison, the S&P BSE Sensex was up 0.12 per cent at 57,174 points at 12:09 PM.

In the past one week, the stock price of HeidelbergCement India, India Cements, Dalmia Bharat, JK Lakshmi Cement, Birla Corporation, Ambuja Cements, and ACC have slipped in the range of 5 per cent to 11 per cent, as against 4 per cent decline in the benchmark index.

However, on Wednesday, India Cements soared 10 per cent to Rs 254.70 on the BSE. Till yesterday, the stock had fallen 20 per cent, from a level of Rs 289.90 touched on September 19, in six days. The stock had hit a multi-year high of Rs 298.45 on September 20.

The capex driven fiscal path of the Government with a 35 per cent jump in the overall capex plan is expected to provide a fillip to the economy. Further the initiative by the Southern States in giving push to housing, infrastructure development, irrigation, metro rail and road buildings augur well for the cement industry. With a prediction of good rainfall to continue this year, the rural economy is also expected to do well.

Given this, India Cements expects the cement demand to remain strong. However, the mounting cost pressure caused by increase in global price of fuel and oil continues with its consequential impact on the bottom line. Hence, one can be cautiously optimistic for improvement in performance for the cement industry in the near future.

Meanwhile, operating profitability of cement makers may decline around 15 per cent on-year to Rs 900-925 per tonne in fiscal 2023, adding to the pain of a 9 per cent decline last fiscal, as increase in realisations will not be enough to offset the increase in prices of coal, petcoke and diesel that has pushed the average cost of production higher, rating agency Crisil Research said.

However, the higher demand will mitigate the impact of lower profitability on absolute operating profits and cash accruals of cement makers, cushioning their credit profiles.

Cement volume growth this fiscal will be driven by non-housing segments, wherein offtake is expected to rise more than 15 per cent, said Koustav Mazumdar, Associate Director, Crisil Research.

"Demand from the infrastructure segment will be aided by government spend, while industrial/ commercial demand will be driven by growing investment in data centres and warehousing, and the low base of the previous fiscal. Offtake from housing segment is expected to grow around 5 per cent, taking overall cement volume growth to 8-10 per cent," the rating agency said.

The sector has seen significant consolidation over the past several years, resulting in strengthening of business profiles. Acquired assets have been turned around even as companies have scaled up, leading to reduction in financial leverage of the sector to less than 1 time (measured as the ratio of net debt to Ebitda). This will keep the debt protection metrics stable despite moderation in profitability, thereby sustaining the credit profiles of cement makers, Crisil Research said.