UltraTech To Dalmia Bharat: Why Cement Companies May Have Lower Realisations In Q4
A sequential fall in average cement prices in Q4 is expected to lead to lower realisations for cement makers.
All-India average cement prices have been dropping for five consecutive months now. Cement prices have a direct impact on a cement company's realisation, or the average price per unit of product sold.
A sequential fall in average prices of the construction material in the fourth quarter is expected to lead to lower realisations for cement makers.
Quarterly Change In Cement Prices
Average cement price in India has fallen 4% sequentially in the three months through March.
The largest dip has been in the eastern region, with prices down 11% quarter-on-quarter, followed by the South and West, where prices fell 5.4% and 4.9%, respectively.
Monthly Drop In Cement Prices
Average cement prices dropped 2.5-3% month-on-month in March, according to Emkay Global.
The drop was seen across regions, with the East and South witnessing a decline of Rs 13-15 per bag. Prices in the central region saw the lowest fall, at Rs 5 per bag, the brokerage said.
The sharp price hike seen during August-September 2023 has reversed since, with five consecutive months of decline now.
Who Will Be Affected The Most
East, South and West regions had the highest fall in prices, according to data from Elara Capital and IDBI Capital.
UltraTech Cement Ltd. has a pan India presence, and contributes the most in terms of capacity for all regions. The company contributes 18.5% to the eastern region's cement capacity in the listed space, and 15.4% in the South, as per Prabhudas Lilladhar. It has the highest capacity contribution in the central region of India at 36.7%, where the price correction in Q4 was the least, the brokerage said.
Dalmia Bharat Ltd. and Nuvuco Vistas Corp. contribute 18% and 12% to the total cement capacity in the East and could be impacted by the price decline.
For the South and West, companies like Ramco Cements Ltd., Dalmia Bharat and Ambuja Cements Ltd. stand to be impacted the most.
Estimates Cut
Despite higher capacity utilisations of over 90% during Q4 FY24, the correction in cement prices across regions led to lower profitability estimates in Q4, according to Motilal Oswal Financial Services Ltd.
Given lower exit prices in March and increased competitive intensity, the brokerage cut its aggregate Ebitda estimate by 3.7%/3.5% for FY25/FY26. This, in turn, would lead to 3.8%/5% reduction in aggregate profit in FY25/26 for companies it covers in the sector.
Lower Ebitda Per Tonne
Motilal Oswal estimates average Ebitda per tonne, which is the profit per unit of cement sold, to decline 12% sequentially to Rs 900, compared to its earlier estimate of Rs 1,100.
This would be partly offset by positive operating leverage and favourable fuel prices for the companies, it said.
The brokerage estimates the highest sequential drop in Ebitda per tonne for Ramco Cements and the lowest for Ambuja Cements.
Relief In Q4?
While realisations are expected to be low for Q4 FY24, cement companies stand to benefit from lower fuel costs and healthy demand.
Fuel prices have stayed relatively stable in Q4. According to Emkay, US petcoke CFR prices marginally increased by 1% month-on-month to $120/tonne in March, but still stand 26% lower on an annual basis. The brokerage expects average fuel costs for cement counters in Q4 to be at Rs 1.6/Kcal compared to the average cost of Rs 1.7-Rs 1.8/Kcal in Q3 FY24.
Emkay said demand trends in Q4 indicate a volume recovery across most pockets on an annual basis, with volumes likely to have improved in low double digits annually in March.
Motilal Oswal expects a 15% year-on-year volume growth for JK Cement Ltd., 11-12% for companies like ACC, Ambuja Cement, Birla Corp., Dalmia Bharat and UltraTech Cement, and 7-8% growth for Shree Cement Ltd., and JK Lakshmi Cement Ltd.
Going Ahead
April has shown a price revival, stated Rupesh Sankhe, senior research analyst at Elara Capital Plc, as he explained that the month usually sees a rebound in prices in most fiscals.
According to Informist, cement companies like Ambuja Cements, Shree Cement, Sagar Cements Ltd., Orient Cement Ltd., ACC, JK Lakshmi, NCL Industries Ltd., UltraTech, India Cements and Ramco Cements have all raised prices in April and are now clearing their order backlog with the old prices.
Sankhe expects a price hike of 3-4% to sustain across India in the next few months, but this is something that will have to be checked as we go forward.
Emkay expects demand to soften in Q1 FY25, due to the upcoming general elections. However, the brokerage also expects the next few years to be characterised by moderate volume growth at 7-8% demand CAGR over FY24-27.
