The share prices of Bharat Ltd. and Shree Cement have decreased by 5–15% in the past month. Even though it was turbulent over the period, the Nifty-50 share index decreased by only about 1 percent.
Investors have been somewhat disappointed by the underperformance of cement sector firms, such as UltraTech Cement, ACC Ltd, Ambuja Cements, Dalmia Bharat Ltd, and Shree Cement share prices. This underperformance has been primarily caused by the fall in earnings recorded by the cement makers during Q1. Not much is anticipated from the traditionally poor quarter due to the monsoon's advent in the current September quarter.
Q1 Falls Short of Forecast Projections
The Q1FY25 cement market turned out to be weaker than expected across parameters, viz., volumes, pricing, and profitability (EBITDA per tonne) down 19% sequentially to ₹832 for 11 major companies, according to analysts at Nuvama Institutional Equities. This was largely because of a weak pricing environment (with realizations declining 2.5% sequentially) and operating leverage as volumes rose by only about 4%. Earnings before interest, taxes, depreciation, and amortization is known as EBITDA.
The cost of cement has been declining during the previous quarter, and it is currently declining much more in Q2. The average cement price throughout all of India fell to ₹342 during the quarter from ₹345 in the prior quarter and ₹355 in the quarter prior to this one.
The influence of the Lok Sabha elections and the heat wave that occurred in the April–June quarter both contributed to the decline in realizations for cement makers. According to analysts at Jefferies India Private Limited, lower pricing were the primary cause of the firm's 5% year-over-year drop in Ebitda during Q1, which was 6% below their predictions.
At INR 845, the average unit EBITDA, or EBITDA per tonne, decreased by around Rs. 180 in a row and Rs. 85 in a year. The industry's volume increased by 2% annually. Jefferies has reduced its FY25 Ebitda projections by 3–19% due to a negative pricing environment, and further risk to their estimates is posed by further price pressure. According to Jefferies, the significant decline in sector profitability is also a benefit for sector mergers, a motivator for consolidators' value and a tailwind for the sector's mergers and acquisitions, they claimed.
Predictions and Outlooks of Analysts
According to Nuvama forecasts, the industry's volume rise in FY25 should be in the mid-single digits (6–7%). A range of cost-saving measures should be put in place by manufacturers such as UltraTech Cement, ACC Ltd, Ambuja Cements, Dalmia Bharat Ltd, Shree Cement, and others to see expenses under control. However, in order to boost volume growth and increase their market share, the bulk of the top cement manufacturers are pursuing capacity expansions. Pricing will therefore most likely continue to face pressure.
JK Cement Ltd. is one of the industry's top options for Nuvama, and Jefferies continues to favor JK Cement above Ambuja Cements and UltraTech Cement.
