Cement Sector – Strong Demand Unlikely to Stimulate Pricing

Prof. Sanjay K. Parida || MBA (Finance) || Academic Head

Key Points 

• 1QFY24 to witness strong demand growth of +12% across all the regions.
• Government expenditure on infrastructure development is driving the broad-based increase in cement demand, which has repercussions for the rural IHB category.
• Private capex is increasing in Commercial as well as Residential sectors on the back of government incentives.
• Despite several efforts, prices are anticipated to stay steady; some price improvement is expected post the festive season Ø EBITDA/T should increase by Rs150–250/T due to fuel mix optimization and falling coal/pet coke costs.

North India:

Infrastructure-driven investments ahead of the 2024 Lok Sabha elections, which account for 40% of total cement demand (the remaining 60% is contributed by Residential and commercial sectors), are driving a broad-based demand increase in North India, especially Rajasthan.

Cement demand in the North region is expected to grow by ~14%+ in 1QFY24. Udaipur, Dungarpur, and Banswara will gain from the 6-laning of the National Highway segment from Udaipur to Shamlaji. Access to border regions from Jodhpur would be made easier by the Bilara-Jodhpur section of NH-25.

By linking Mewar and Marwar and facilitating the flow of products & services, the new railway line from Shri Nathdwara would boost trade & commerce in marble, granite, and other mining segments. On the other hand, land in the Delhi-NCR zone that was given to the builders 15-20 years ago would be forfeited if it is not developed for Commercial or Residential use. Additionally, it is anticipated that the nearby Jewar airport would drive up the cost of both Commercial as well as Residential real estate in the region.

It is anticipated that Delhi-NCR will see the sale of 50,000 residential units in CY24. In NCR, high rises are replacing row houses, which will result in an increase in cement demand in FY24. Important projects include the Dedicated Freight Corridor (DFC) in Haryana, Metro projects in Delhi & Gurgaon, construction of smart cities in Delhi, Rajasthan & Haryana, Delhi-Meerut RRTS and the Varanasi High-Speed Rail Corridor.

West India:

The key drivers of the continuing infrastructure development are the BMC elections later this year and the assembly election in Mumbai. In 1QFY24, urban housing and real estate activities would increase cement demand by 15%+ YoY in the Western region. Mumbai and MMR will take the lead in infrastructure development (roads, motorways, and metros).

Demand in Gujarat will be boosted by infrastructure development in Ahmedabad and Surat (metro, motorway, and national highway projects), state roads, the Mumbai-Ahmedabad bullet train project, the trans-harbour connection, coastal roads as well as steady growth in real estate (including urban Affordable Housing projects).

South India:

We expect South India to grow by 20%+ YoY in 1QFY24, owing to continued traction from infrastructure projects like primary roads, expressways, metros, etc. with government spending (65%) and private spending (35%) aiding demand growth in FY24. Historically, underperforming states like Tamil Nadu and Karnataka are expected to see development in their state infrastructure sector.

While demand is up ~8% over the last month, state supplies have increased as AP and Telangana players have been prevented from shifting volume to Tamil Nadu to capitalize on the price differential. Instead of rising, cement prices have moderated to Rs330/bag in Tamil Nadu – the same as in AP and Telangana.

During the next five years, incremental cement demand will be driven by expressways like the Bengaluru-Chennai, Bengaluru-Mysore & Chennai-Salem section, Namma metro project in Bengaluru, Kochi metro project, irrigation projects, and other infra projects. Hybrid or return-to-office enterprises will indirectly improve real estate sector-led cement demand.

East India:

NBIE expects the region to see 18%+ growth in cement demand in 1QFY24. In the future, according to NBIE, smart cities, IHB and Affordable Housing projects under the PMAY-G (the area accounts for more than 50% of the units being built under the program) would be the main drivers of demand.

Other key projects include Metro development in Kolkata, Patna & Ranchi; the eastern DFC; several road & rail projects in the North-East; smart city-related development in Odisha (Bhubaneswar), West Bengal (Newtown Kolkata), Jharkhand (Ranchi), Bihar (Bhagalpur) and Chhattisgarh (Raipur) and several other road & highway projects.

Central India:

UP will lead cement demand in the Central region, which is expected to grow by 12%+ in 1QFY24, as per NBIE channel checks. Pratapgarh, Deora, Hardoi, Urai, Kanpur Defence Park in Sarh, Ramaipur mega leather cluster, Gorakhapur, Meerut, Balrampur, Basti and Pilibhit are some of the districts that are being developed to become industrial hubs. We predict that the UP government’s drive for infrastructure development will boost regional cement demand.

The Yogi government in UP has provided incentives, unique amenities, and concessions to investors/stakeholders in order to expedite the execution of mega projects. In March’23, the UP Chief Minister approved infrastructure projects in Ayodhya totaling Rs4.65bn. IHB is in high demand in the rural sector as a consequence of the labor class’ rising disposable incomes.

The construction of 10 national highways in UP will boost the real estate sector in the region. Key infra projects include the Urja Ganga gas pipeline project, the Varanasi – Kolkata expressway, the Lucknow-Agra 8-lane project, the Kanpur outer ring road project, and the Ganga expressway.

TRADE PPC – WSP / per Bag
Eastern Region	Feb – 23	Mar – 23	Apr – 23	May – 23	June – 23	Difference (+)/ (-) (May- June)
Kolkata	360	365	360	363	368	+5
Patna	380	385	380	383	388	+5
Dhanbad	360	365	360	363	368	+5
Chhattisgarh	305	310	305	308	313	+5
Bhubaneswar	335	340	335	338	343	+5
Ranchi	350	355	350	353	358	+5
Western Region	Feb – 23	Mar – 23	Apr – 23	May – 23	June – 23	Difference (+)/ (-) (May- June)
Ahmedabad	375	375	380	380	375	-5
Mumbai	375	375	380	380	375	-5
Pune	335	335	340	340	335	-5
Surat	390	390	395	395	390	-5
Northern Region	Feb – 23	Mar – 23	Apr – 23	May – 23	June – 23	Difference (+)/ (-) (May- June)
Jaipur	355	355	348	356	352	-4
Delhi	360	360	360	360	360	0
Ghaziabad	370	370	375	375	375	0
Central Region	Feb – 23	Mar – 23	Apr – 23	May – 23	June – 23	Difference (+)/ (-) (May- June)
Lucknow	390	397	385	385	385	0
Bareilly	385	392	375	375	375	0
Agra	350	357	360	360	360	0
Aligarh	358	365	370	370	370	0
Meerut	385	392	385	385	385	0
Muradabad	395	402	390	390	390	0
Bhopal	355	360	366	361	365	+4
Indore	355	360	366	361	365	+4
Southern Region	Feb – 23	Mar – 23	Apr – 23	May – 23	June – 23	Difference (+)/ (-) (May- June)
Bangalore	390	395	388	395	400	+5
Chennai	385	375	340	325	330	+5
Vishakhapatnam	365	360	353	350	355	+5
Hyderabad	330	325	318	325	330	+5
Cochin	365	355	348	355	360	+5
North-East Region	Feb – 23	Mar – 23	Apr – 23	May – 23	June – 23	Difference (+)/ (-) (May- June)
Guwahati	455	455	460	455	455	0
Shillong	485	485	490	485	485	0

*Note- Prices as of 26 June 2023