Ratings agency, India Ratings and Research (Ind-Ra), maintained a neutral outlook on the cement sector for FY24, in view of strong demand fundamentals, some recovery in profitability and comfortable balance sheets, which would keep the sector in good stead despite the large capex pipeline.

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Ind-Ra has also maintained a stable rating outlook on its rated cement portfolio for FY24, according to its report.

The rating agency expects cement demand to grow 8 percent-9 percent year-on-year (YoY) in FY24. The government’s infrastructure push ahead of the general elections in 2024 will be the growth driver, Ind-Ra reported. The capacity utilisations to remain below 70 percent amid a large expansion pipeline. Ind-Ra believes 75 percent of the announced expansion of around 150 million tonnes is actually likely to come on stream over FY23-FY25.

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With the supply growth rate broadly in line with demand growth, the rating agency expects capacity utilisations to remain at 67 percent-68 percent in FY24. Furthermore, with a large part of the additions in the form of grinding units, clinker utilisations are likely to remain 800-1,000 bp higher than cement utilisations, indicating a higher effective utilisation rate.

According to Ind-Ra, the cement sector is likely to witness increased consolidation in the near-to-medium term, given the widening gap between leading and small players amid a tough environment and the aggressive medium-term capacity targets of large players that are unlikely to be achieved organically with the available resources. The share of top 10 companies also increased to 71 percent in FY23 and is likely to increase further in the next couple of years.

However, Northern India is likely to witness capacity utilisations of around 80 percent utilisations and strong profits. While, in Central India, the large supply pipeline is likely to weigh on the otherwise strong utilisations over the near term.

Meanwhile, the West may witness a YoY improvement. With 30 percent of the planned capex concentrated in the fastest-growing Eastern region, utilisations would remain subdued while the southern region would remain at the bottom, Ind-Ra revealed in its report.

(Edited by : Sangam Singh)

First Published:Apr 17, 2023 4:43 PM IST