The earnings season is nearing the end and all major players have reported their numbers, showing a mixed bag of results for the cement industry. Here are six takeaways from the Q3 FY23 results of the top five cement companies.

Demand growth intact

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Demand for cement seems intact and, in fact, growing for all the major players (except Ambuja Cements and ACC), which have registered a growth in volume year-on-year in the December 2022 quarter. Revenue has increased YoY for all the companies, thanks to rise in volumes and cement prices. According to an Emkay report, a 50 kg cement bag was priced ₹340-360 in the December 2021 quarter, while it was ₹360-380 in the December 2022 quarter.

Cost pressure unabated

The major costs of the cement industry involve raw material, power and fuel, and logistics.

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Raw material cost grew 20 per cent on average YoY for the top five players. Ultratech Cement and Shree Cement recorded a reasonably lower rise in this cost (single-digit rise) whereas Ambuja Cements, ACC and Dalmia saw a steep rise on this front. The major raw materials for cement production are limestone, clay, marl and fly ash, among others.

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The power and fuel cost has been a major spoiler, hitting profitability, which grew at an average of 37 per cent YoY (for the five major companies covered). Since the start of the Russia-Ukraine war, commodity prices have shot through the roof and turned unsustainable. Energy prices began cooling off in the second half of FY23 and this is expected to aid profitability in the coming period. The price of imported coal has dropped to $218 per tonne from the peak of $457 in September 2022. The Brent has also been seeing a similar trend, trading currently at $84.57 per barrel from $121.74 in June 2022.

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Logistics cost has risen around 13 per cent on average YoY for the five companies covered. Logistics is a major variable cost that generally accounts for 20-25 per cent of sales revenue. Ambuja Cements and its subsidary ACC recorded the least rise in logistics cost among the top five players, with Shree Cement recording the highest rise.

Outlook

The cement industry has been seeing decent demand growth in the last few quarters, as is visible in the top line of the companies. The main impediment in translating this top line growth to bottom line growth is the steep rise in costs, accompanied by an inadequate rise in cement price. The government’s increased allocation of capital expenditure and its focus on affordable housing are expected to keep cement demand intact. If this trend continues, then the profitability of cement companies may be restored.

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