Cement Volume to witness de-growth in Q2FY23 due to monsoon

The cement sector's September quarter is typically weak because construction activity slows during the monsoon season. As a result of lower offtake, cement companies will see volume de-growth on a quarterly basis. Because cement prices remained weak for the majority of Q2FY23 (despite a hike at the end of September), the realization will be lower for the quarter.

Volume growth for the quarter was 8.1% year-on-year and a drop of 6.1% quarter-on-quarter for ACC, 8.6% year-on-year, and a drop of 6.2% quarter-on-quarter for Ultratech, 7.9% year-on-year and a drop of 8.7% quarter-on-quarter for Shree Cement, and 18.2% year-on-year and a drop of 3.3% quarter-on-quarter for Ramco cement. For the quarter, combined realizations for ACC, Ultratech, Shree Cement, and Ramco will increase by 3.6% year-on-year and 0.3% quarter-on-quarter, 4.7% year-on-year and a drop of 4.0% quarter-on-quarter, 4.4% year-on-year and a drop of 5.7% quarter-on-quarter, and a drop of 2.9% year-on-year and a drop of 3.1% quarter-on-quarter, respectively.

During the quarter, key input prices such as pet coke, coal, power, and fuel remained elevated. Imported coal prices peaked at $ 388/tonne on September 6, 2022, before falling to $ 300/tonne by the end of the month. Like imported coal, crude oil prices have fallen from their peak, which has a direct impact on cement companies' freight and forwarding costs. Most input prices have fallen by an average of 20-25% since their peak. However, the weighted average prices for the key inputs remained high for the quarter, which will continue to impact cement manufacturers' margins. The benefits of lower key input prices will not be felt by cement companies until the next quarter.

Cement demand is expected to grow at the same rate as India's GDP. With the government's emphasis on infrastructure spending and affordable housing, the cement sector's long-term growth potential remains strong. As the Covid pandemic has passed, the sector's demand is expected to rebound, particularly during the holiday season and the January-March peak construction period. Cement companies, sensing a resurgence in order, have already begun aggressive capacity expansion plans. Both Ultratech and Ramco Cements are ramping up their capacity.

Cement companies are expected to raise prices further in the October-December quarter, improving their profitability. Furthermore, commodity prices are currently softening from their peaks, which will help cement companies protect their margins in the coming quarters.

Outlook of Top Cement Companies in Q2FY23:

1. ACC Cement:

In Q3CY22, ACC is expected to report 7.1 MT cement sales volume (8.1% year-on-year and a drop of 6.1% quarter-on-quarter and 0.7 MT ready mix concrete volume, with a blended realization of Rs. 5,437/tonne, resulting in 13.1% year-on-year and a drop of 5.1% quarter-on-quarter revenue growth. Due to higher input prices (power/fuel/coal/petcoke), the earnings are expected to fall by 48.2% year on year and a drop of 13.4% quarter on quarter. The earnings margins are expected to fall by 1030 basis points year on year and 84 basis points quarter on quarter.

The net profit will fall 47.6% year on year, matching the drop in the earnings, but will increase 3.8% quarter on quarter. The net profit margins are expected to fall by 644 basis points year on year, but to rise by 48 basis points quarter on quarter.

2. Ultratech Cement:

Ultratech is expected to report 23.5 MT cement sales volume with a growth of 8.6% year-on-year and a drop of 6.2% quarter-on-quarter with a blended realization of Rs. 5,815/tonne, resulting in 13.7% year-on-year and a drop of 9.9% quarter-on-quarter revenue growth. Peak input costs will keep margins under pressure during the quarter. the earnings are expected to fall by 20.2% year on year and 30.0% quarter on quarter. The earnings margin is expected to fall by 674 basis points year on year and 456 basis points quarter on quarter. The net profit will be down 19.2% year-on-year and 33.0% quarter-on-quarter, while The net profit margins will be down 317 basis points year-on-year and 268 basis points quarter-on-quarter.

3. Shree Cements:

Shree Cement will sell 6.8 million tonnes of cement with a growth of 7.9% year-on-year and a drop of 8.7% quarter-on-quarter with a blended realization of Rs. 5,590 per tonne, resulting in revenue growth of 12.7% year-on-year and a drop of 13.9% quarter-on-quarter. The earnings are expected to fall 32.3% year-on-year and 22.2% quarter-on-quarter due to continued pressure on input costs (power/fuel/coal/petcoke). The earnings margin is expected to fall by 1090 basis points year-on-year and 174 basis points quarter-on-quarter.
The net profit will fall by 48.2% year-on-year but will rise by 4.4% quarter-on-quarter due to higher other income in Q1FY23. The net profit margins would be down 901 basis points year-on-year, but up 134 basis points quarter-on-quarter.

4. The Ramco Cement:

Ramco Cement is expected to report 3.2 MT cement sales volume (18.2% year-on-year/-3.3% quarter-on-quarter) with the blended realization of Rs. 5,210/tonne, resulting in 10.9% year-on-year/-6.3% quarter-on-quarter revenue growth. The impact of higher input costs will keep margins under pressure. the earnings are expected to fall 38.2% year-on-year and 18.4% quarter-on-quarter. the earnings margin to fall by 1177 basis points year-on-year and 221 basis points quarter-on-quarter. The net profit is expected to fall by 65.4% year-on-year/32.9% quarter-on-quarter, while The net profit margins will shrink by 970 basis points year-on-year and 174 basis points quarter-on-quarter.