Moderate monsoon impacting cement sales

Downside Risks

♦ Cement sales rose 12% in H1/FY24

♦ May clock 9% growth in H2

♦ Fund allocation slows down amid upcoming Assembly polls

♦ Increasing focus on green power reducing operating costs at cement cos

New Delhi: The cement sales volume is expected to have a healthy 9 to 10 per cent growth in the current fiscal, led by demand from infrastructure and urban housing sectors, according to a report.

In the first half of this fiscal, the industry had a volume growth of around 12 per cent in the April-September period, said a report from rating agency Icra. However, there would be some moderation in growth in H2 on account of below-normal monsoons on the overall crop output, adversely impacting farm incomes and demand for rural housing in some markets, it added.

“Moreover, with the upcoming State elections the release of funds towards ongoing infra projects may slow down, posing some downside risks to cement volume off-take in H2 FY2024,” it said. However, the operating margins for the cement industry is expected “to improve by 260-310 bps to 16.0-16.5 per cent in FY2024”.

The increasing focus on green power is likely to lower the cement industry’s dependence on high-cost thermal power and grid for power requirements, thereby reducing the operating costs, it said. “Assuming thermal power cost at Rs 6.5/unit, waste heat recovery system (WHRS) power cost at Rs 0.75/unit and solar power cost at Rs 4.5/unit, a 25 per cent replacement of thermal power consumption by green power could lead to cost savings of around 15-18 pc, while also reducing the carbon footprint,” it said.