Cement Sector Check - Elevated Energy Costs To Weigh On Margins: Nirmal Bang

Nirmal Bang Report

We hosted three cement companies viz. JK Cement Ltd., Nuvoco Vistas Cement Ltd. and Sagar Cement Ltd. as part of our investor conference. We present here the key takeaways from the meetings. The common feedback from the companies largely centered around three key points.

1. operating costs are likely to peak out in Q2 FY23 and will see moderate decline thereafter,

2. cement demand and pricing are currently low on account of monsoon, and both are likely to increase post October 2022,

3. the entry of the Adani group in the Indian cement sector is unlikely to alter the competitive landscape significantly at least in the initial couple of years.

We currently have a ‘neutral’ rating on the cement sector since we believe that operating cost pressures, enhanced competitive intensity (on account of entry of Adani) and aggressive capacity expansion announced by incumbent players will likely exert pressure on pricing and thereby on margins.

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