Cement sector Q4 preview: Volume likely to grow in high single-digits; impact of weak cement prices to be offset by lower costs, operating leverage

With companies all set to announce their Q4FY24 numbers soon, analysts expect cement industry volume in Q4FY24 to grow by a high single-digit year-on-year (YoY). ICICI Securities expects the volume to grow by at least 17–18 per cent as compared to Q2 FY24. 

Analysts at InCred Equities peg the industry growth at around five to six per cent YoY in 4QFY24F, with FY24F to end with nine per cent growth.

The report said that with average earnings before interest, tax, depreciation, and amortisation EBITDA/t already improving by Rs 236 quarter-on-quarter (QoQ) and by Rs 360 YoY to Rs 1,130 in 3QFY24, there is barely any room for a significant margin expansion in the near term. 

However, analysts believe the long-term story for the cement sector remains concrete, particularly driven by the infrastructure segment and housing demand, which account for more than 24 per cent of demand. 

Furthermore, the combination of lower-than-expected demand and the introduction of new capacity will likely continue to exert pressure on pricing in the near term. This trend will result in a narrowing of the spreads, and the average EBITDA/t in 4QFY24F is likely to fall by Rs 50–80 QoQ. 

As per ICICI Securities, if prices fail to recover, it will certainly hit FY25E earnings.

Analysts at Emkay expect cement demand to moderate in Q1 FY25 due to the upcoming general elections. Thus, as per them, the extent of price hikes and sustainability remain key monitorable factors. 

Elara Capital's report suggests the negative impact of weak cement prices on most cement firms’ Q4 FY24 performance should be offset by lower costs and operating leverage. 

As per the report, on a quarterly average basis, cement prices are likely to decline two per cent YoY and five per cent QoQ in Q4FY24E. West and Central India would post a QoQ fall of three per cent, followed by four per cent in North India, seven per cent in East India, and eight per cent in South India. 

For the full year, the all-India average price may drop around 1 per cent YoY. Region-wise, East and North India are set to rise around 2 per cent YoY and three per cent YoY, respectively, while Central, West, and South India are likely to decline around one per cent YoY, two per cent YoY, and four per cent YoY, respectively. 

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