Price hikes improve cement profitability outlook: CLSA

Capital markets and investment group Credit Lyonnais Securities Asia (CLSA) Limited, told the media that the recent price hikes of the cement manufacturers aided the margin growth of the cement companies in FY22. Cement companies had a consecutive increase in prices in March, April, and May. The current prices of all the Indian blended cement are 5-7% above Q4 FY21. According to CLSA, the cement sector's profitability outlook has improved after the increases in prices. It forecasts the industry's Ebitda per tonne will increase 3% year-on-year in FY22. Ebitda is short for earnings before interest, tax, depreciation, and amortization. CLSA expects that by FY24, the industry's profitability will be around 85% for a greenfield project to break even. Some of the discretionary costs can be returned in FY22. Also, prices of higher commodities like coal, petroleum coke, and diesel are likely to increase. Cash cost per tonne is expected to increase 4% year-on-year in FY22. For Q4 FY21, cement volumes were 15% higher and improved more than 25% year-on-year, while Ebitda per tonne was 3% up, compared to the previous quarter. The impact of the second wave of Covid-19 is a key risk factor for the sector, CLSA said. CLSA expects cement demand to grow 10% year-on-year in FY22 on a low base in FY21. According to the CLSA report, FY23 is likely to become normal before picking up again in FY24, a pre-election year. Rural Independent Home Builders (IHB) and infrastructure will be the key demand drivers soon, with urban real estate likely to pick up with a lag. The sector's capacity and utilisation are poised to improve. Image Source Also read: Cement industry to witness improved demand from July 2021 Also read: Ambuja Cements and ACC bring industry 4.0 to Indian cement sector