FY23 wasn’t a great year for the cement industry, whether it was the considerable reduction in offtake, both to local markets (down 16%) and abroad (down 14%) or the drop in eventual earnings that slid 5 percent cumulatively (for 12 out of 16 companies). But it could have been worse. FY24 is no different; except the stakes are higher this time. But though, domestic demand is tanking, market watchers estimate a profitability rise.
In the second quarter of the fiscal year (FY24), demand remains considerably subdued from an already downer of a year. Domestic offtake shrank 12 percent in 2QFY24. Due to the near-meteriotic rise in exports, total offtake would go on to grow by 1 percent during the quarter. But earnings are expected to grow on the back of continually rising prices and a coal mix that has enabled cost optimization for most cement players.
The risks are aplenty. Despite an increase in exports, in triple digits no less, and a share in total sales standing at 15-16 percent during FY24 thus far, capacity utilization is trailing below 60 percent. With domestic demand down, some cement players have been looking toward –and actively pursuing—exports to make up for their idle capacities remaining underutilized, but though exports are growing, they couldn’t grow fast enough. Given the aggressive expansion plans across the industry that has raised capacities, offtake has not taken off. Fast-growing exports are simply trying to keep up—in 2QFY24, they stood at 1.9 million tons, higher than recent quarters, but not nearly at their peak. Just three years ago in the first quarter of FY21, cement industry exported 2.9 million tons of cement abroad. With higher financing costs and greater burden of taxes, the industry ought to be slightly worried over the coming quarters if most domestic demand dampeners stay up.
Comments
Comments are closed for this article.