India’s top cement makers have either reported a rise in the contribution of premium products to their sales last financial year, or have indicated plans to focus more on premium products in a bid to improve realisations. Analysts, however, remain divided on how the manufacturers benefit from such moves.
India’s largest cement producer, UltraTech Cement reported that premium products contributed 20.4 percent to its trade sales in the quarter ended March 2023. The company said this was a rise of 26 percent on a year-on-year (YoY) basis. Trade sales refers to cement that manufacturers sell through dealers and distributors, and not directly, e.g., to enterprises such as infrastructure developers. Trade sales comprise bulk of the industry’s overall sales volumes, for UltraTech, trade sales in March-23 quarter contributed 66 percent to the overall sales volumes.
Ambuja Cement has said that it will focus on increasing the share of premium products to 30 percent of sales by FY26-27, from 27 percent of total trade sales currently, analysts with Emkay wrote in a post management call report dated May 3.
In its latest investor presentation, Ambuja Cement has said that ACC's realisation was up 6 percent in the March quarter, driven mainly by both overall and premium products’ volume growth. Ambuja Cement is the promoter company for ACC and holds 50.05 percent stake in it.
Dalmia Bharat has similar numbers. In an earnings call with analysts, top executives from the company said the sale of premium products had improved significantly by 19 percent to 3.4 million tonnes during the last financial year. This has outpaced the overall volume growth reported at Dalmia, which was at 15.9 percent for FY22-23 on a YoY basis.
The rush to sell premium products is not limited to the top producers of the country. Orient Cement told analysts that premium products comprised 17 percent of its overall trade sales, and the overall increase in the sale of premium products stood at 22 percent for the March quarter.
While cement companies hope to improve realisation by growing the share of the premium category, not everyone is impressed.
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“There are just two to three truly premium products in this country, which command their price. The rest are just companies marketing their brands as premium. It is difficult to assess the revenues as the price or discount they were sold at is not available,” said a senior cement analyst who did not wish to be identified. Others pointed out that overall, cement prices in the trade category have been muted for the last few quarters, raising doubts about the appetite for premium products.
However, some remain hopeful that expanding the premium category’s share can help improve the realisations for cement makers. Analysts with Axis Securities, for instance, said that they expect Orient Cement’s EBITDA margins to improve in FY23-24 and FY24-25 for multiple reasons, including higher sale of premium products.
“We see a Rs 250-Rs 300 / tonne improvement in EBITDA/tonne in FY23-24E,” the analysts wrote in a May 4 note on the company. EBITDA is earnings before interest, taxation, depreciation, and amortisation.
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