Incremental funding in cement sector will come solely when profitability improves: Report, ETCFO

Incremental funding in cement sector will come solely when profitability improves: Report, ETCFO

Incremental funding in cement sector will come solely when profitability improves: Report

New Delhi [India], December 27 (ANI): The Indian cement trade should considerably enhance its profitability, with EBITDA needing to exceed Rs1,000 per ton to justify the naked minimal return on capital employed (ROCE) for future investments, in keeping with a report by IKIGAI Asset Supervisor.

Attaining this profitability threshold would require substantial pricing help, underscoring the sector’s challenges regardless of sturdy demand and consolidation.

Illustrating present margins, the report outlines an instance the place the trade achieves an EBITDA of Rs800 per ton. After adjusting for 80 per cent capability utilisation and accounting for depreciation, the post-tax ROCE stands at a mere 3 per cent. For incremental investments, the report highlights that profitability must be doubled.

The mixed market capitalization of listed cement corporations, exceeding USD100 billion, implies the trade would want to promote over 150 billion tons of cement on a reduced foundation perpetually. Such lofty expectations add stress on corporations to reinforce efficiencies and enhance pricing methods.

By FY27, the highest 4 gamers are anticipated to account for over 75 per cent of capability additions, with their mixed capability share rising to 65 per cent.

Nevertheless, a big problem looms with the expiration of greater than 25 per cent of limestone mines by 2035, making limestone availability a key issue for future acquisitions.

Renewable vitality prices are proving to be a game-changer for the sector. Energy from renewable sources is 40-50 per cent cheaper than grid energy, whereas waste warmth restoration programs are 70-80 per cent cheaper.

Growing the share of inexperienced vitality in cement manufacturing might assist cut back operational prices and enhance margins.

India is the second-largest cement market globally, with an put in grinding capability of 659 million tons, second solely to China (1,640 million tons).

Regardless of its measurement, cement stays one of many most cost-effective commodities in India, priced at Rs5-7 per kg, a lot decrease than different necessities like sugar, metal, or milk. Furthermore, cement accounts for less than 6 per cent of the price of constructing a home, highlighting its affordability.

The report reveals that whereas cement demand has traditionally grown in step with GDP, pricing energy stays weak. During the last decade, the value of a 50-kg cement bag has elevated by solely 50 per cent (CAGR of three per cent), in comparison with a 400 per cent improve within the worth of a cup of tea. The trade has seen a mere 1 per cent CAGR in cement costs over the previous decade.

India’s cement trade is exclusive in being largely promoter-driven, with main gamers like UltraTech Cement, Ambuja Cement, and Shree Cement main consolidation. UltraTech and Ambuja have acquired grinding capacities of 73 MTPA and 31 MTPA, respectively, over the previous decade.

The trade’s subsequent part of development hinges on balancing demand dynamics, pricing methods, and price optimization by means of renewable vitality adoption.

Because the report notes, every Rs1 improve in cement worth per bag might add Rs67 billion to the EBITDA of the highest 10 gamers, making pricing a essential lever for sustaining development and guaranteeing long-term profitability. (ANI)

  • Revealed On Dec 27, 2024 at 02:20 PM IST

Be part of the neighborhood of 2M+ trade professionals

Subscribe to our publication to get newest insights & evaluation.

Obtain ETCFO App

  • Get Realtime updates
  • Save your favorite articles


Scan to obtain App


Supply hyperlink

Leave a Reply

Your email address will not be published. Required fields are marked *