Cement Sector Outlook - Losing The Plot: ICICI Securities

ICICI Securities Report

Pricing power is crucial in the commodity business and the Indian cement sector is certainly losing the plot on that front. Elevated competitive intensity across regions, has prevented margin-accretive price hikes, despite: robust demand (Q4 FY23E prices slipped ~1% QoQ notwithstanding peak season volume surge of ~10% YoY), and more than 400 basis points jump in industry clinker utilisation to a healthy 77% (89% ex-South) in FY23E.

Industry’s inability to pass on the unprecedented fuel cost surge (in H1 FY23) too was a glaring instance of weak pricing power. While current capacity addition pipeline offers limited scope for further improvement in utilisations until FY25E, Adani Cement’s recently reiterated resolve to double its capacity by FY28 (which may trigger a race for capacity share) may keep competitive intensity high for an extended period.

Of course, the recent fall in global fuel cost offers relief. However, pricing trends in recent years (wherein only Q1 witnesses hikes followed by sustained weakness in rest of the fiscal) offers limited comfort on sharp margin expansion.

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