Demand for the primary building materials being relatively lower has further added to the pricing woes, as makers have not been able to sustain any hikes taken during the quarter.
An extreme heatwave in several regions, the unavailability of labour, and slower construction activity amid the general election for nearly six weeks weighed on demand. Analysts expect volumes in the quarter to have grown in mid-single digits year-on-year, as compared to a double-digit growth in the previous quarter.
The volume growth for cement companies has moderated after eight consecutive quarters of robust growth, while prices have been trending lower for several months now and are at their lowest level in nearly three years.
“Overall, we expect revenue to drop ~3% YoY, worst performance since COVID-19 and first lockdown, and ~11% QoQ in Q1FY25E,” Elara Securities said in a pre-earnings note.Other analysts see the topline 1-4% lower as compared to the previous year.
The impact of this tepid demand and a correction in prices, though, will be offset by lower fuel prices and cost optimization efforts of companies. As a result, even with lower revenues, companies are seen clocking in an improvement in their profitability, with operating margins for the space seen improving by an average of up to 150 basis points on year.
Shree Cement, UltraTech Cement, JK Cement and JK Lakshmi Cement are seen faring the best in terms of an improvement in profitability.
OUTLOOK
While the September quarter is seasonally weak for cement makers due to lower demand because of monsoon rains, some pent-up demand from the previous quarter could boost earnings in the current quarter, analysts said.
The focus, though, will remain on commentary from companies for pricing, as a fierce fight for market share between the country’s two largest producers and capacity addition from several players in the industry has kept prices subdued.
“Earnings for FY25/26E are at risk due to volatility in cement prices amid aggressive capacity expansion in the industry. We anticipate further consolidation in the space (mostly in the southern region due to its fragmented nature),” Nuvama Institutional Equities said.
