Lack of expansion plans dulls Heidelberg Cement’s outlook
The December quarter (Q3FY23) earnings performance of Heidelberg Cement Ltd was unimpressive with sales volume falling 3% year-on-year (YoY), indicating a continued market share loss. While variable expenses have started to soften due to easing fuel prices, subdued cement prices in the company’s key markets of central and southern India kept realisations growth muted.
In an earnings call, the management said it expects good near-term traction in cement demand. With calendar year (CY) 2023 a pre-election year, demand for cement is poised to improve. It estimates cement demand in the central region to grow 5.5%-6% in FY23 and 7% in FY24.
But the problem is that at a time when many cement makers are going full throttle on capacity expansions, Heidelberg is lagging behind. The company will be focusing on increasing capacity only marginally via debottlenecking and the ongoing debottlenecking is slated to be completed by FY24, the management said.
“In the absence of any major planned expansion for the next four years, we expect the subdued volume growth and market share loss to continue, as other players are expanding in the company’s core markets,” said analysts at HDFC Securities Ltd.
Secondly, the management commentary on prices was also not very encouraging. Cement prices have been subdued in the region for Q3FY23 and beginning of Q4FY23, it said. A bright spot, however, is easing costs. For Q3FY23, fuel cost stood at Rs2.85/kcal compared to nearly Rs3.13/kcal in the previous quarter. So, the management is hopeful of a 10% sequential decline in its overall power and fuel costs in Q4.
Meanwhile, in CY23 so far, the stock has declined by 9.30%. The stock hit a new 52-week low of Rs155.30 on 1 February. On Friday, shares of the company rose nearly 1.80% intraday on the NSE to Rs170. According to a media report, cement prices have been hiked across India, which led to positive rub-off on shares of many cement makers on Friday.
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