In Q1FY25, the cement sector under Axis Securities’ coverage demonstrated resilience, with a slight decline in revenue, EBITDA, and APAT by 1%, 4%, and 9% YoY, respectively, contrary to the expected growth of 0%, 7%, and 4%. However, the volume growth of 5% was in line with expectations, indicating the sector’s stability. EBITDA margins decreased by 50 bps YoY and 290 bps QoQ, primarily due to lower realisations. Despite this, reduced operating costs, with a 5% YoY drop in cost/tonne, helped cushion the impact.
Realisation and costs
The realisation per tonne declined by 3% QoQ and 5% YoY to ₹5,343, reflecting a broader decline in cement prices. Power and fuel costs, however, softened by 23% YoY to ₹1,041/tonne, providing some relief to operational performance.
Sector performance
Among companies, JK Cement exceeded expectations, while Birla Corp, Ambuja Cement, ACC, and Heidelberg Cement underperformed. New capacity additions by major players like UltraTech and Dalmia Bharat bolstered supply capabilities.
Demand and pricing trends
The cement demand was muted in early Q1 FY25 but showed signs of recovery in June 2024. While prices have corrected, further pressure on realizations is expected in Q2 FY25.
Outlook
Looking ahead, demand is anticipated to strengthen post-monsoon, with non-trade demand likely to rise due to government project allocations. However, cement prices may continue to face challenges, with an expected decline of ₹200-₹250 per tonne in Q2FY25. The reduction in power and fuel costs is a positive sign, but it is essential to monitor future fuel price trends.
Long-term view
Axis Securities maintains a positive long-term outlook on demand, projecting a 7%-8% CAGR over FY23-FY26E. Key areas to watch include price realizations and input cost trends.
Top sector ideas
UltraTech Cement Ltd: Target Price ₹12,400
JK Cements Ltd: Target Price ₹4,920
Dalmia Bharat Ltd: Target Price ₹2,120