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Net Profit Of Big Cement Firms Surges 29.6% In Pandemic-Hit FY21: Report
The net profits of 10 major listed cement companies surged by 29.6 per cent on an average in FY21, although aggregate revenues grew modestly by 3.8 per cent
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Pandemic-hit FY21 has turned out to be a good year for the big cement companies, as their net profits surged and market position strengthened, a report said.
The net profits of 10 major listed cement companies surged by 29.6 per cent on an average in FY21, although aggregate revenues grew modestly by 3.8 per cent, according to an analysis undertaken by Acuite Ratings.
The cement volume growth has been disrupted in the April-June quarter of FY22 after the second wave of COVID-19, but the sector is expected to see good a recovery post-monsoon led by the government’s thrust on infrastructure activities and housing construction, it added.
“FY21 has proved to be a good year for the Indian cement sector. While the disruption caused by the COVID pandemic led to operational and demand challenges in the first half of FY21, the recovery in the second half drove a strong improvement in the sector profitability for the whole year,” Acuite Ratings said.
Besides, cost rationalisation and low-cost inventory played a key role in the expansion of EBITDA (earnings before interest, taxes, depreciation, and amortization) margins, which went up 349 basis points to 24.3 per cent in FY21.
“Price hikes are undertaken by cement players in the latter part of the fiscal, further supported the profitability improvement,” it said.
The report also said that with the continued fuel inflation, the pace of growth in operating profitability is, however, likely to moderate in FY22.
“Yet, higher realisation supported by price hikes and product mix may continue to support the higher profitability,” it added.
In the first half of FY21, domestic cement consumption declined by 8 per cent year-on-year due to COVID related disruption, however, the sector witnessed a significant recovery in H2 FY21 (October-March) amid a step up in infrastructure and construction activities in the country.
“Our study shows that the volume growth of the top ten cement players stood at 2.6 per cent in FY21, which is divergent from an overall 13.1 per cent volume decline in the sector,” Acuite Ratings said, adding “in our opinion, this clearly highlights the ongoing consolidation and the strengthening market position of the larger companies”.
Moreover, the cement sector saw severe headwinds in demand in the early half of last year, and it did benefit from the lower prices of key operating costs, i.e. petroleum coke and diesel, which account for 25-30 per cent of the total operating costs of the sector.
“The cost structure, however, was challenged in H2FY21, when prices of petroleum coke rose by 29 per cent and diesel prices by 15 per cent over H1FY21. Nevertheless, availability of low-cost inventory and change in the fuel mix enabled cement players to report stronger EBITDA margin,” it said.
Moreover, better-operating efficiencies have also played a key role in supporting the improving operating margins in FY21, as several players lowered the consumption of petroleum coke by increasing the use of imported coal, it added.
In FY21, the cement sector saw 20 million tonnes of capacity coming on stream despite uncertainty over COVID-led disruptions.
“Cement capacity is expected to grow at a CAGR of 5 per cent during FY22 to FY23, and in the current year, 28 million tons of cement capacity is projected to come on stream,” it said.
Players like UltraTech Cement, Shree Cement, Birla Corporation, Ramco Cements and India Cements have already announced plans to expand capacities further over the medium term, the report added.