Moody’s said while the outlook for the cement industry looked bright, the company’s profitability had been hurt by rising petroleum coke, coal, and diesel costs for much of the current fiscal year.
Investments focused on infrastructure and large-scale residential projects in India will drive demand for cement and other building materials over the next 12 to 18 months, Moody’s Investors Service said in a report.
India’s cement production will increase by around 6-8% in fiscal years 2023 and 2024 after rising 21% in the fiscal year ending March 2022, according to the rating agency.
However, he added that the industry is unlikely to reap the extreme profits it enjoyed in fiscal 2022.
“A growing housing sector, which typically accounts for 60%-65% of India’s cement consumption, will remain a key demand driver. Also, continued large investments in roads and infrastructure projects will fuel cement demand,” Moody’s said.
“India built 12,000 kilometers of highways in 2022 alone and this momentum will likely continue in 2023 and 2024, supported by various government initiatives,” it added.
Additionally, in the Union Budget 2023-2024, the government allocated $1.8 billion for initiatives such as safe housing, clean water and sanitation, and improved connectivity of roads and telecommunications.
The government has also allocated $9.6 billion to address the city’s housing shortage, the rating agency said.
Moody’s said while the outlook for the cement industry looked bright, the company’s profitability was hurt by rising petroleum coke, coal, and diesel costs for much of the year.
“A sequential, quarter-on-quarter decline in these costs will prevent a further sharp decline in profitability, although a return to the unusually high profits cement producers enjoyed in fiscal 2022 is highly unlikely,” it added.
Moody’s also expects UltraTech Cement’s operating margin to fall to 18% in 2022-23 and 20% in 2023-24, from a range of 23-26% in the past two years.
Several cement producers have announced new capacity additions totaling 60 million tonnes following Adani Group’s acquisition of India’s cement business from Holcim Ltd, which could keep capacity utilization below by 70% and prevent sharp price increases, he added.