Region-wise,the southern region comprises 35% of the total cement capacity, followed by thenorthern, eastern, western and central region comprising 20%, 18%, 14% and 13%of the capacity, respectively.
The cement industry is expected to post positive margins on decent price hikes over the months, falling raw material prices and marked drop in overall production costs, said an analysis of Care Ratings.
Wholesale and retail prices of cement have increased 11.9% and 12.4%, respectively, in the current financial year. As whole prices have remained elevated in most of the markets in the months of FY20, against the corresponding period of the previous year.
Similarly, electricity and fuel cost have declined 11.9% during 9M FY20 due to drop in crude oil prices. Logistics costs, the biggest cost for cement industry, has also dropped 7.7% (selling and distribution) as the Railways extended the benefit of exemption from busy season surcharge. Moreover, the cost of raw materials, too, declined 5.1% given the price of limestone had fallen 11.3% in the same aforementioned period, the analysis said.
According to Care Ratings, though the overall sales revenue has increased only 1.3%, against 16% growth in the year-ago period, the overall expenditure has declined 3.2% which has benefited the industry largely given the moderation in sales.
Even though FY20 has been subdued in terms of production and demand, the fall in cost of production has still supported the cement industry by clocking in positive margins, the rating agency said.
Cement demand is closely linked to the overall economic growth, particularly the housing and infrastructure sector. The cement sector will be seeing a sharp growth in volumes mainly due to increasing demand from affordable housing and other government infrastructure projects like roads, metros, airports, irrigation.
The government’s newly introduced National Infrastructure Pipeline (NIP), with its target of becoming a $5-trillion economy by 2025, is a detailed road map focused on economic revival through infrastructure development.
The NIP covers a gamut of sectors; rural and urban infrastructure and entails investments of Rs.102 lakh crore to be undertaken by the central government, state governments and the private sector. Of the total projects of the NIP, 42% are under implementation while 19% are under development, 31% are at the conceptual stage and 8% are yet to be classified.
The sectors that will be of focus will be roads, railways, power (renewable and conventional), irrigation and urban infrastructure. These sectors together account for 79% of the proposed investments in six years to 2025. Given the government’s thrust on infrastructure creation, it is likely to benefit the cement industry going forward.
Similarly, the Pradhan Mantri Awaas Yojana, aimed at providing affordable housing, will be a strong driver to lift cement demand. Prices have started correcting Q4 FY20 onwards due to revival in demand of the commodity, the agency said in its analysis.
Industry’s sales revenue has grown at a CAGR of 7.3% during FY15-19 but has grown only 1.3% in the current financial year. Tepid demand throughout the country in the first half of the year has led to the contraction of sales revenue. Fall in the total expenditure of cement firms had aided in improving the operating profit and net profit margins of the industry (OPM was 15.2 during 9M FY19 and NPM was 3.1 during 9M FY19). Interest coverage ratio, too, has improved on an overall basis (ICR was 3.3 during 9M FY19).
According to Cement Manufacturers Association, India accounts for over 8% of the overall global installed capacity. Region-wise, the southern region comprises 35% of the total cement capacity, followed by the northern, eastern, western and central region comprising 20%, 18%, 14% and 13% of the capacity, respectively.
Installed capacity of domestic cement makers has increased at a CAGR of 4.9% during FY16-20. Manufacturers have been able to maintain a capacity utilisation rate above 65% in the past quinquennium. In the current financial year due to the prolonged rains in many parts of the country, the capacity utilisation rate has fallen from 70% during FY19 to 66% currently (YTD).
Wonder Cement shows journey of cement with new campaign
The campaign also marks Wonder Cement being the first ever cement brand to enter the world of IGTV…
Cement manufacturing company Wonder Cement, has announced the launch of a digital campaign ‘Har Raah Mein Wonder Hai’. The campaign has been designed specifically to run on platforms such as Instagram, Facebook and YouTube.
#HarRaahMeinWonderHai is a one-minute video, designed and conceptualised by its digital media partner Triature Digital Marketing and Technologies Pvt Ltd. The entire journey of the cement brand from leaving the factory, going through various weather conditions and witnessing the beauty of nature and wonders through the way until it reaches the destination i.e., to the consumer is very intriguing and the brand has tried to showcase the same with the film.
Sanjay Joshi, executive director, Wonder Cement, said, "Cement as a product poses a unique marketing challenge. Most consumers will build their homes once and therefore buy cement once in a lifetime. It is critical for a cement company to connect with their consumers emotionally. As a part of our communication strategy, it is our endeavor to reach out to a large audience of this country through digital. Wonder Cement always a pioneer in digital, with the launch of our IGTV campaign #HarRahMeinWonderHai, is the first brand in the cement category to venture into this space. Through this campaign, we have captured the emotional journey of a cement bag through its own perspective and depicted what it takes to lay the foundation of one’s dreams and turn them into reality."
The story begins with a family performing the bhoomi poojan of their new plot. It is the place where they are investing their life-long earnings; and planning to build a dream house for the family and children. The family believes in the tradition of having a ‘perfect shuruaat’ (perfect beginning) for their future dream house. The video later highlights the process of construction and in sequence it is emphasising the value of ‘Perfect Shuruaat’ through the eyes of a cement bag.
Tarun Singh Chauhan, management advisor and brand consultant, Wonder Cement, said, "Our objective with this campaign was to show that the cement produced at the Wonder Cement plant speaks for itself, its quality, trust and most of all perfection. The only way this was possible was to take the perspective of a cement bag and showing its journey of perfection from beginning till the end."
According to the company, the campaign also marks Wonder Cement being the first ever cement brand to enter the world of IGTV. No other brand in this category has created content specific to the platform.
In spite of company’s optimism, demand weakness in cement is seen in the 4% y-o-y drop in sales volume. (Reuters)
Cost cuts and better realizations save? the ?day ?for ?UltraTech Cement, Updated: 27 Jan 2020, Vatsala Kamat from Live Mint
Lower cost of energy and logistics helped Ebitda per tonne rise by about 29% in Q3
Premiumization of acquired brands, synergistic?operations hold promise for future profit growth Topics
India’s largest cement producer UltraTech Cement Ltd turned out a bittersweet show in the December quarter. A sharp drop in fuel costs and higher realizations helped drive profit growth. But the inherent demand weakness was evident in the sales volumes drop during the quarter.
Better realizations during the December quarter, in spite of the 4% year-on-year volume decline, minimized the pain. Net stand-alone revenue fell by 2.6% to ?9,981.8 crore.
But as pointed out earlier, lower costs on most fronts helped profitability. The chart alongside shows the sharp drop in energy costs led by lower petcoke prices, lower fuel consumption and higher use of green power. Logistics costs, too, fell due to lower railway freight charges and synergies from the acquired assets. These savings helped offset the increase in raw material costs.
The upshot: Q3 Ebitda (earnings before interest, tax, depreciation and amortization) of about ?990 per tonne was 29% higher from a year ago. The jump in profit on a per tonne basis was more or less along expected lines, given the increase in realizations. "Besides, the reduction in net debt by about ?2,000 crore is a key positive," said Binod Modi, analyst at Reliance Securities Ltd.
Graphic by Santosh Sharma/Mint
What also impressed analysts is the nimble-footed integration of the recently merged cement assets of Nathdwara and Century, which was a concern on the Street.
Kunal Shah, analyst (institutional equities) at Yes Securities (India) Ltd, said: "The company has proved its ability of asset integration. Century’s cement assets were ramped up to 79% capacity utilization in December, even as they operated Nathdwara generating an Ebitda of ?1,500 per tonne."
Looks like the demand weakness mirrored in weak sales during the quarter was masked by the deft integration and synergies derived from these acquired assets. This drove UltraTech’s stock up by 2.6% to ?4,643 after the Q3 results were declared on Friday.
Brand transition from Century to UltraTech, which is 55% complete, is likely to touch 80% by September 2020. A report by Jefferies India Pvt. Ltd highlights that the Ebitda per tonne for premium brands is about ?5-10 higher per bag than the average (A cement bag weighs 50kg). Of course, with competition increasing in the arena, it remains to be seen how brand premiumization in the cement industry will pan out. UltraTech Cement scores well among peers here.
However, there are road bumps ahead for the cement sector and for UltraTech. Falling gross domestic product growth, fiscal slippages and lower budgetary allocation to infrastructure sector are making industry houses jittery on growth. Although UltraTech’s management is confident that cement demand is looking up, sustainability and pricing power remains a worry for the near term.
Cement capacity in India expected to cross half a billion tonne this year
Currently, the installed capacity is 485 mtpa and with the new additions, it will rise to 508 mtpa in 2020Avishek Rakshit | Kolkata BS
Amidst weakened demand conditions, the total installed cement capacity in the country is expected to cross half a billion tonne this year as several companies, including UltraTech, JK Cement, Dalmia Bharat and others are in their final leg to add 23 million tonne per annum (mtpa) of production capacity.
Currently, the installed capacity is 485 mtpa and with the new additions, it will rise to 508 mtpa in 2020. JK Cement will be adding 4.2 mtpa while the sector leader, UltraTech, will be adding 4 mtpa of capacity followed by Dalmia Bharat at 3.5 mtpa. Ramco Cement will add 2.1 mtpa while Ahmedabad based Sanghi Industries and Meghalaya based Star Cement are expected to commission 2 mtpa of additional capacity each. Birla Corporation, Wonder Cement and Ambuja Cement will be adding the rest of the 5.2 mt capacity.
Shree Cement is also on the lookout to add new capacities although a final call on the same is yet to be taken. Although weakened demand and new capacity additions were expected to further dampen prices, Kunal Shah, analyst at Yes Securities is of the view that the third financial quarter (Q3), ended December 31, 2019 will prove to be a strong one for cement firms, as earnings are expected to improve.
"It will be characterised by flattish trend of industry-wide volume growth, healthy prices vis-a-vis last year and softening of input costs. Further, we expect distinct disparity in earnings among companies as regional dynamics will come into play", Shah said.
Industry officials estimated that particularly companies which have exposure in the north and central zones will significantly outperform as compared to other region players.
So far, it is estimated that average prices have increased by around 3.5 per cent on a sequential basis whereby prices rose by Rs. 20 a bag in north, west and east India while it rose by Rs 10 in central region. In south India, however, prices remained on the lower side since November.
"With new capacity being added this year, prices may be rolled back with markets like east India expected to witness intense pressure", Shah said.
However, it is expected that in the Q3 period, backed by optimal input costs, net realisation per tonne will improve by 1.6 per cent on a year-on-year basis.
Owing to muted demand conditions, the average capacity utilisation remained at a sub optimal level of 70 per cent and with the new additions in place this year, the level is expected to remain the same.
"Cement capacity always comes up in anticipation of demand. There is no reason to believe – demand won’t pick up in the infrastructure segment with projects beginning to roll after finance issues are being resolved by concerted intervention by the centre and investment in rural areas. Individual housing segment will also pick up with better crops in many parts of the country plus Central projects like PMAY", Sandip Ranjan Ghose, chief operating officer at Birla Corporation said.
H M Bangur, managing director at Shree Cement is also, bullish on the new additions to capacity. "The additions have to be looked into from a long term perspective and demand is expected to improve this calendar year. There is going to be enough opportunity for cement companies to cater to the growing demand in the future and so, capacities will have to be put in place prior", he said.
According to Bangur and other industry officials, while there may not be much traction from the individual house builder segment in the near term, government spending on infrastructure is expected to boost demand. "The only weak link in the chain remains large real estate projects which are mired in its own problems; but, it should be partially off-set with development of suburban and small towns – smart cities and low cost housing", Ghose added.
Nevertheless, the increase in prices is poised to hover only around two per cent. According to Care Ratings, as a result of the ongoing muted demand conditions, the sector growth may fall to 5-7 per cent for the 2019-20 fiscal year from the 13.3 per cent growth in 2018-19.
Industry sources said that demand has already improved slightly in most regions although liquidity issue continues to persist. This Monday, prices were hiked in all regions except south, where the announced price hike is expected to be implemented soon.