Further, volume growth in Q1 would be slightly muted as compared to Q4. While 5-6% volume growth is expected for the industry as a whole, for larger companies like Ambuja and UltraTech with their many acquisitions, growth would be higher, in mid-teens.
There have been solid price hikes in both April as well as May followed by a partial roll back in June. Where are cement prices headed?
Rakesh Arora: Cement prices normally during this busy season which is the January to June period, head upwards because a) capacity utilisation is much better and b), companies are gearing up for the monsoon season and want prices to be higher before the lean season kicks in. We are seeing price increases being attempted both in Eastern India and Southern India. These are the two regions which were lagging in Q4.
In Q4, there was a good spike in margins for all the companies, but South India and East India were still lagging. So, a large part of the price increases in Q1 has happened in these two regions. It is a normal course of action that they try to increase and then there is some roll back, then they try to increase further. So, that is the normal process. You try to increase a lot more than what you want and then, the trade does not really accept those kinds of large prices, it comes back but still some of the pricing is stuck. I am sure they will be trying another attempt in June also before the monsoon kicks off in full form.
Monsoons already seem to have kicked in most parts of the country. We have seen an early monsoon this year. So, after the busy period that you were just talking about, this quarter and perhaps the next could be marred by these early monsoons. Could this early onset of monsoon dampen volume growth in Q1 and could there be more price cuts on the charts?
Rakesh Arora: The volume growth in Q1 would be slightly muted as compared to what happened in Q4 and all. We are expecting around 5-6% industry growth rate. But larger companies like Ambuja and UltraTech have done so many acquisitions that for them, growth would be higher, but industry would grow at 5-6% for Q1.
We are largely through with Q1 as of now and prices are slightly higher as compared to last quarter. So, Q1 is safe. There is not much of an issue. It is only in Q2 and Q3 that prices might come off, but that happens every year and so there is nothing much to worry about. Overall, when I look at the sector, things are looking much better because now I see competition intensity actually coming down a little bit and that augers well for price increases to hold going forward.
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Three largest players UltraTech, ACC, and Ambuja have all reported strong double digit volume growth in the fourth quarter. What is the outlook now though for FY26, where is it that you see their volume picture headed?
Rakesh Arora: Because they have done large acquisitions in Southern India, both the companies will report mid-teens kind of volume growth in FY26, but the industry growth would be 6% to 7%. Since they have additional capacities which were already selling in the market, UltraTech has taken over India Cements. Now, India Cements volume was already there in the market. So, for them, it is a growth, but industry does not really grow that much. Secondly, Ambuja again has acquired Orient, Penna, and Sanghi. So, they also have additional volume coming from these. So, their numbers would show mid-teen growth, but the industry will grow at 6-7%.
We have just had this recent news flow trickle in about the West Bengal incentives being rolled back. Some of these major cement players like Dalmia Bharat and Ambuja stand to be impacted because from what we understand, they have incentives worth over Rs 200-250 crore each from this government. How are you seeing this pan out for both these companies and do you believe a legal battle could follow from here on?
Rakesh Arora: I do not think Ambuja, etc, would be impacted that much because they have largely exhausted their incentives. Only a small amount is left. It is largely Nuvoco, Shree Cement which have new capacities that would be impacted a little bit more. But I do not think this retrospective removal of incentives is going to stand in the court. I am very sure that these companies will approach the court. After the capex has been done, the government cannot really remove incentives retrospectively. I am sure that the courts will rectify this mistake by the government. Sentimentally, it could be a little bit damp in the near term.
You track metals very closely. We had some latest developments that came in from China in terms of macroeconomic figures and they continue to remain very slow. What is your view on the Chinese economy and its impact on the metal sector globally?
Rakesh Arora: So, see, China is doing whatever it can to support its economy and that is reflected in commodity prices remaining reasonably stable. Obviously, there is also hope that they might stitch up some agreement with the US so that would take out the overhang. So, in the near term, I would say that metal demand-supply is finally balanced and probably things are going to remain stable at these levels. I am not really seeing a big up move in commodity prices, but they are not going down either. A lot will depend on how the US and China tariff war plays out. If that is settled, then maybe there is a leg up.
And within ferrous and non-ferrous metals, if you have to choose one set, where will your bets lie?
Rakesh Arora: The tailwind is with the non-ferrous because of the shift to renewable energy. When investors are well off by staying along with aluminium and copper that kind of commodities, they have decent demand and supply support.I am going to take my chance here. I do not know if you really track rare earth minerals or not, but what is your entire stance on how big an issue this is going to turn out to be because this is an artificial situation created by China to try and get things done with the US with regards to tariff and a whole lot of other things. But since India has the reserves, can India up the game when it comes to processing because processing is the key thing which China holds close with 90% of the processing of rare earth minerals being done by China alone.
Rakesh Arora: Rare earth minerals are very difficult to explore, mine and find and it will take a long time before India or other countries are able to ramp up any kind of production. So, in the interim, there is not much of a choice but to resolve the issues with China. But maybe over the longer term, there is a case. We are also hearing that the government is coming out with a PLI for rare earth. Those are the steps which the government needs to take to augment domestic supplies.
