Q3 results preview: Cement firms' earnings, profitability likely to decline

Pricing weakness to chip away at earnings: Single-digit demand growth, realisations to dip

Indian cement makers may report single-digit growth in volumes, while their profitability could take a hit in the third quarter of the current financial year (Q3FY25). 

A Bloomberg analysts’ consensus shows both earnings before interest, tax, depreciation, and amortisation (Ebitda) and profit after tax declining for most cement makers in the quarter under review. 

In the absence of major price hikes, lower realisations will impact profitability on a year-on-year (Y-o-Y) basis, according to analysts. Cement prices during the quarter under review remained depressed for the most part, except for a price hike taken towards the end. 

Analysts with Nuvama, in a January 6 report, said they expect Ebitda for the cement firms in their coverage to fall 18 per cent from a year ago, mainly due to a weak pricing environment on account of elevated competition. 

Those at Yes Securities said tepid growth is foreseen. “After a slowdown in the first two quarters due to multiple issues, i.e., prolonged monsoon impact, festival season, and regional fund release issues, the cement industry is likely to witness tepid growth in Q3.” 

Analysts across multiple brokerage firms estimated the top four cement makers — UltraTech Cem­ent, Ambuja Cements, Dalmia Cement, and Shree Cement — to report a Y-o-Y decline in Ebitda per tonne. In terms of sales volume growth, analysts with Yes Securities, in a January 1 report, said they do not see any sizeable spike in volume “due to no major progress in the government capital expenditure programme after the election and Budget announcement. So, the recent price hike is meaningless in our view”. 

Nuvama expects industry-level cement demand to grow 8 per cent in the quarter from a year ago. Of that, Ambuja Cements, Nuva­ma said, is likely to see a 20 per cent jump in demand, helped by acquisitions. Analysts with Kotak Securities, in a January 7 report, estimate cement industry demand growth of six per cent Y-o-Y in Q3FY25 and build in 7 per cent Y-o-Y volume growth for their coverage universe, factoring in market-share gains. Brokerages also expect earnings downgrades to continue for cement makers, as a meaningful pickup in demand is yet to happen. 

Nuvama noted an earnings downgrade for FY25E (estimates) through 2025-26E is likely, considering “the volatile pricing environment and lower-than-expected volume growth in nine-month FY25”. 

Analysts with Kotak Securities agreed, observing that earnings downgrades are to continue. “We expect an earnings downgrade to continue in the sector during the upcoming results season, despite the sequential recovery in margins,” the analysts noted.