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But the bottom line is it’s going to be difficult for the younger players.
cement stock, except a few
and Ambuja, have improved by 25-40% in the last six months, driven by a muted pricing scenario in a cost inflationary environment. But the sector’s current trading multiple is higher than the long-term median multiple. Nevertheless, analysts at Ambuja, ACC, and Par remain positive.
Analyst, Sandeep Tulsian said, “The big players are expected to experience a tug of war to emphasize market share and volume, which will lead to a fall in profits as players undervalue each other.” “Small players are expected to see a decline in their fundamentals – cash flow and return ratio – thereby derailing their capacity expansion plans. Also, with the fundamentals deteriorating, smaller players with a strong regional presence may become acquisition targets. can.”
Adani Group’s entry into the cement space is expected to accelerate capacity addition plans for ACC and Ambuja. The industry is expected to add over 90 MTPA in capacity in FY 2023-25 per plan announced by the major players. This means a 5% Compound Annual Growth Rate (CAGR) in installed capacity, while demand is projected to post 6-7% CAGR in FY 2023-25. Apart from organic expansion, the industry may undergo inorganic expansion with restructuring of existing medium and large players.
With the increase in supply almost equal to the increase in demand, analysts expect industry capacity utilization levels to remain almost flat at 67-68% in FY2023-25.
“We expect the weighted average EBITDA/tonne to grow at a CAGR of 4% during FY 2022-24, though it may remain lower than the peaks seen in FY21,” said Sharekhan analyst Ronald Cioni. “According to historical anecdotes, cement prices will remain on an upward trajectory despite capacity additions over the next three years.”
The smaller players will have less sway in the pricing products and will have to imitate the pricing trend established by the mid and large players. According to analysts, they may face a highly competitive environment in view of the increase in supply driven by capacity addition in their area of operation.
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