Cement Q2 Results Preview: Weak Pricing Adds To Woes Of Seasonally Weak Quarter

Majority of Indian cement companies are likely to report a weak second quarter results on account of erratic monsoon impacting construction activity leading to a flat-to-marginally negative volume growth. Historically too, the second quarter has consistently been characterised by seasonal tepidity and subdued demand, brokerages said.

Additionally, the weak pricing environment seen in the Indian cement industry would have only aggravated the situation, they said.

The average pan-India cement prices have been down 7% annually and 1% sequentially at Rs 331 per bag in the second quarter ended September 2024, according to data from Motilal Oswal. 

While India has witnessed a dip of about 2-3% in cement prices in July and August, there was a hike of Rs 35-40 per bag in September. Despite rolling back most of the price hike, companies may have absorbed a price hike of around Rs 10-12 per bag, according to Systematix.

Despite this, Motilal Oswal expects the blended realisation of cement companies to decline 7% year-on-year in the second quarter ended September 2024. Citi expects realisations to fall between 1.5% and 3.5% on a quarterly basis. Nuvama expects realizations to fall sequentially by 2%.

Nuvama expects the Indian cement industry to witness flat-to-marginally negative volume growth in the second quarter. While volume growth did pick up in the third month of the quarter, volumes in July and August were disappointing due to erratic monsoons that slowed down construction activities and the unavailability of labour, the brokerage said.

Citi shares a similar perspective, stating that their industry sources indicate that the demand for cement in all of India was either flat or slightly lower on an annual basis during the second quarter. The brokerage expects Shree Cement Ltd., Ramco Cements Ltd., Nuvuco Vistas Corp., and JK Cement Ltd. to report a decline in volumes, while UltraTech Cement Ltd., Ambuja Cement Ltd., and Dalmia Bharat Ltd. could see a 5% growth in volumes on annual basis.

The weakness in demand and volume growth is likely to hit cement companies' Ebitda growth, dragging it by 15% year-on-year and 23% sequentially, according to Nuvama. This would also contract the company's margins despite lower coking coal prices, the brokerage said.

Motilal Oswal expects the average Ebitda per tonne to decline by 27% and 22% on an annual and sequential basis, respectively.

Citi states that Ebitda per tonne values reported by companies during Q2FY25, will help them set a base for the second half of the current financial year. The brokerage awaits commentary about prices and volume trends that companies expect to play out after September 2024. UltraTech is the top pick in India's cement industry, according to Citi.

The brokerage maintains a 'buy' rating on ACC Ltd., Grasim Industries Ltd., Shree Cement, and Dalmia Bharat, while maintaining a 'sell' on Ramco Cements, Nuvoco Vistas Corp., and JK Cement.

Nuvama expects earnings downgrades for cement companies in fiscal 2025 and 2025 due to the continued distress in cement prices. The brokerage expects further consolidation in the industry, especially in the southern region of the country. It said that the softening of fuel prices can provide companies with some relief on the cost front, negating the impact of weaker realizations.

Nuvama currently has a ‘buy’ rating on JK Cement and ACC and a ‘hold' rating on Ultratech Cement, Ambuja Cements, Shree Cements, and Grasim Industries.