Cement companies likely to focus on volume growth next fiscal amid higher competition and volatile input costs

Top rung cement companies are likely to focus on increasing volumes of cement sales rather than pricing in FY24, a pre-election year. There are a few factors which may compel companies to focus on this strategy. First, companies have engaged in organic and inorganic expansion to gain market share. According to estimates, the sector reported an incremental capacity of 33 MT in FY23 so far, which is likely to increase competitive pressure.

Second, the capacity addition amid fluctuating prices of raw material such as pet coke and coal due to geo-political conflicts provide little room for companies to increase prices.

Another reason is historically, demand for construction increases in a pre-election year as the government increases spending on urban, rural, and low cost housing, and infrastructure. These segments generate 80-90% of the cement demand. Analysts estimate demand to grow at a compounded annual growth rate of 8-9% between FY22 and FY25.

Large cement manufacturers such as Ultratech Cement, Ambuja Cements, Dalmia Bharat and Shree Cement are likely to record higher revenue growth given timely expansion, strong balance sheet and stable cashflow from operations. Their earnings per share (EPS) is expected to increase by 25-58% while revenue may grow by 15-25% year-on-year for FY24.