A SMOOTHER PATH

Increased productivity and brighter demand outlook in the second half of this fiscal will lend support to the cement sector in India

Industry analysts and sector experts say the challenges that eroded the margins of cement companies may not persist in the second half of the current fiscal, enabling it to improve and grow.

Challenges such as high raw material prices and weak demand have eroded margins of cement companies in the first half of the present fiscal. But the street has changed the earnings estimates of well-placed companies in the second half of the present fiscal. After the coronavirus pandemic, four challenges arose before cement companies. First, the pandemic impacted the demand for cement as most construction-related projects came to a grinding halt. Lack of finance, focus on conserving cash for day-to-day operations, weak demand and delayed payments impacted businesses of cement companies.

Second, competition among cement companies increased considerably. Third, prices of raw materials such as pet coke and coal hurt the margins of cement companies. Fourth, India’s cement industry is dealing with overcapacity, which has further intensified competition among players. As the first half of the present fiscal ended, a large number of analysts have turned optimistic about the business situation in the industry. In the past one-and-a-half years, fuel prices more than doubled owing to the ongoing geopolitical tensions between Russia and Ukraine.

In recent months, however, pet coke - a key ingredient in manufacturing cement - has become less costly. According to estimates, pet coke prices have fallen by 30%. Analysts feel that the benefit of this fall will be seen in the second half of this fiscal.