Cement Q1 Results Review - Muted Volume Growth, Weaker Realisation Drag Earnings: DRChoksey

Deven Choksey Research Report

In Q1 FY25, the cement industry experienced subdued volume growth YoY and ongoing pressure on cement prices, resulting in lower realizations for cement companies.

Cement prices witnessed pressure in Q1 FY25 due to general elections, heat waves, and industry consolidation.

All the companies under our coverage saw a drop in Ebitda/tonne sequentially due to weaker realization.

The industry saw major mergers and acquisition happening recently specifically in the South region, with UltraTech Cement buying a stake in India Cements and Ambuja Cement acquiring Penna Cements.

In terms of pricing outlook, the sector is expected to experience a moderate increase in cement prices by the end of CY24, owing to the delayed monsoon followed by the festive seasons.

The medium-term outlook for the sector is promising, driven by upcoming infrastructure projects, increased capital expenditure, and growing demand for real estate and housing.

It is anticipated that demand for cement will surpass the supply, despite the expansion of capacities by companies.

In the medium term, the key triggers for the sector are-

• capacity expansion,

• realization,

• margin improvement from cost-saving initiatives.

Top Picks:

We maintain a positive outlook on ACC Ltd. and UltraTech Cement Ltd. due to their planned capital expenditures for FY25E and FY26E, recent merger and acquisition deals in the South region, alongside their cost-reduction strategies.

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