Notwithstanding the increase in volumes, the operating margins of cement companies this fiscal are expected to hit the lowest in last seven years due sharp rise in input cost.
Cement sales volumes are expected to grow by 7-8 per cent this fiscal to about 388 million tonnes aided by demand from housing and infrastructure sectors, said an ICRA report.
The demand for rural housing was supported by a robust rabi harvest and better crop realisation. The progress of kharif sowing, amid a modest hike in minimum support price of such crops for the upcoming marketing season, will determine farm sentiments.
Infra expansion bodes well
The significant increase of 24 per cent in infrastructure expenditure to ₹7.5 lakh crore in FY23 Budget led by ₹1.8 lakh crore for roads and ₹1.4 lakh crore for railways is expected to augur well for cement demand.
Notwithstanding potential challenges due to increasing interest rates, demand for urban housing will be led by growth in employee headcounts and salaries for many IT/ITES companies, demand for better and larger homes on account of the shift to the hybrid working model in customer segments, BFSI and related sectors is likely to support demand going forward, said the report.
Operating income up, but...
Anupama Reddy, Vice President of ICRA, said operating income in this fiscal is expected to increase by about 13 per cent, majorly supported by volume growth and higher sales realisation. However, the elevated input costs will adversely impact the operating margins which is expected to decline by 440-490 basis points to about 16.4 per cent, the lowest in last seven years, said Reddy.
The industry will add a capacity of 29-32 million tonne per annum this fiscal against last fiscal’s addition of about 25 mpta. The eastern region is expected to lead the expansion and may add around 16-17 mpta followed by the central region at about 6-7 mpta this fiscal. The cement industry’s capacity utilisation is likely to remain moderate at around 68 per cent on an expanded base.