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Cement companies to witness lowest operating margins, growth in cement volumes in FY 2023: ICRA report

[ecis2016.org] As per a report by ICRA, cement volumes are expected to grow by 7-8% in FY 2023 to around 388 million MT. The higher input costs may cause a decline in operating profit margins by 440-490 bps in FY2023.

According to a report by credit rating agency ICRA, cement volumes are likely to grow by 7-8% in FY 2023 to around 388 million MT, supported by demand from housing, both rural and urban, and infrastructure sectors.

The report analyses the demand-supply scenario and input costs pressure on operating margins in FY 2023 for cement companies. Based on the report, the demand for rural housing was aided by a robust rabi harvest and better crop realisation. The progress of Kharif sowing amidst a moderate hike in MSPs of such crops for the upcoming marketing season would determine farm sentiments in the coming days.

In the infrastructure segment, an increase by 24% in capital expenditure to Rs. 7.5 trillion in FY 2023 budget estimates over FY 2022 revised estimates, led by Rs. 1.8 trillion for roads and Rs. 1.4 trillion for railways is expected to be favourable for cement demand. In the urban housing segment, despite the increasing interest rates, the growth in employee headcounts and salaries for several IT/ITES companies, and demand for better and spacious homes due to the hybrid working model in customer segments working in IT/ITES, BFSI and related sectors are likely to support demand.

Anupama Reddy, vice president, Corporate Ratings, ICRA, said, “In FY2023, operating income is expected to increase by around 11-13%, majorly supported by volumetric growth as well as an expected increase in net sales realisation. However, the elevated input costs are likely to adversely impact the operating margins and decline by 440-490 bps to ~15.9%-16.4%, which are expected to be the lowest over the last seven years.”

According to ICRA, the cement capacity additions are likely to increase to around 29-32 MTPA in FY 2023 from about 25 MTPA in FY 2022, driven by strong demand prospects. The eastern region may lead the expansion and add around 16-17 MTPA, followed by the central region at about 6-7 MTPA in FY 2023. The capacity additions in the east are likely to result in some pricing pressures in the region. Moreover, despite an expected increase in volumes by 7-8%, the cement industry’s capacity utilisation is likely to remain moderate at around 68% on an expanded base.

“While the capacity addition is likely to increase in FY 2023, the debt reliance is likely to be rangebound owing to the healthy liquidity of the cement companies. Hence, the leverage (TD/OPBIDTA) at 1.3x and coverage, DSCR at 3.3x in FY2023 are expected to remain healthy.” Reddy added.

Source: https://ecis2016.org/.
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Debora Berti

Università degli Studi di Firenze, IT

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