Cement firms’ revenue to rise 12-14% in FY23 aided by higher volume, says ICRA

Cement companies in India are expected to see their revenue increase by 12-14% in FY23, supported by higher volume growth and better realisation, according to a report by ICRA. However, higher input costs such as power, fuel, raw material and freight charges, are likely to weigh on operating profit before interest, depreciation, tax and amortisation (OPBIDTA), with a decline of 26-30% to Rs 775-825/MT in FY23, the rating agency said. Consequently, operating margin of cement companies are estimated to contract by 600-690 bps to about 13.9-14.8% in FY23.

However, the operating margin of cement companies are likely to grow by 200-240 bps in FY24, driven by likely easing of the cost side pressures, primarily on power and fuel costs.

Anupama Reddy, VP & Co-Group Head of Corporate Ratings at ICRA, stated that operating performance is expected to improve in FY24, with a 5-7% growth in revenue and increased operating margins. This is due to lower power and fuel costs, as well as lower coal and crude prices resulting from higher output, weak global oil demand, and slower global growth. Further, Reddy said that  the OPBIDTA/MT is projected to increase by 13-19% to Rs 900-950/MT in FY24, resulting in about 200-240 bps in operating profit margin to around 16.3%-17%.

The rating agency said that it expects the capacity additions of cement companies to rise to about 30-33 MTPA and 33-36 MTPA in FY23 and FY24, respectively, from around 25 MTPA in FY22. Moreover, despite an expected increase in demand in FY23 and FY24, the utilisation levels are likely to remain moderate at around 68-69%, on an expanded bases.

Overall, cement volumes in India is likely to have increased by 11% YoY at 248 million tonnes (MT) in the first eight months of FY23 supported by continued strong demand from rural housing and pick-up in infrastructure activity. Besides, cement volumes are expected to grow by 8% YoY in FY23 to around 389 MT, up 16% from 334 MT in FY20. In fiscal 2024, cement volumes are likely to grow 7% to about 416 MT compared to financial year 2023.

Meanwhile, as earnings of cement companies soften, the debt dependence is expected to be higher to fund the ongoing capital expenditure, which is likely to moderate the leverage and coverage in FY23 and FY24.