Cement companies make a come-back

At least 3 cement companies have announced results so far and they are all having a field day! Sales has fully recovered, and businesses have reported record operating profits growth from the year ago period.

The cement industry in India has long suffered from chronic over capacity, low utilisation, high input prices and low-pricing power amongst the players. But this has changed significantly over the last few years.

  • Large scale consolidation driven by players like Ultratech Cement improved the competitive landscape
  • Low realisations and wafer-thin industry profitability kept new entrants away

Both these factors have led to higher factory utilisations and better pricing power for the incumbents. During the recent quarter, higher sales was primarily driven by better price realisation. The country witnessed average cement price increase of 3%-5%, while the southern region witnessed price increase of 14%. Capacity utilisation at the overall industry level is now around 75% – 80%. Things are looking like they’ll improve even further.


  • Demand is starting to increase. Kumar Mangalam Birla said this week that this increase in demand is being driven by migrant workers moving back to their hometowns. “People are now building a new home, they’re adding one more room to their existing houses out of safety — just in case they have to stay at their homes for longer,” Birla explained. In addition, government’s fiscal spending push in the infrastructure sector is slated to increase demand for cement even more.
  • Prices of key raw materials used in cement production have significantly decreased over the last few quarters. Prices of crude oil, pet coke, PP granules and energy/fuel have gone down by anywhere between 5% and 55% over the last one year. This has meant that profits have grown faster than sales.

Against this backdrop, cement stocks have made significant gains in the stock markets over the last 2 weeks.

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