Budget and Cement sector

The effective capital expenditure has been increased by 30% YoY vs FY23RE and +28% YoY vs FY23BE to Rs1.37trn in FY24BE; highlighting government’s intent to maintain emphasis on Infrastructure spending (3yr Cagr is 28%), especially in a pre-election year. This augurs well for Cement demand growth in FY24 and improves visibility on our expected FY24ii industry volume growth of 9-10% YoY. Key increase is seen in the Road and Metro segments; while allocation to Housing is largely maintained.

• Road capex up 25% YoY: Targeted capex of Ministry of Road Transport and Highways (MoRTH) is up 25% YoY vs FY23RE and up 38% YoY vs FY23BE to Rs2.59trn. Higher allocation implies government’s focus to expedite road construction activities.
• Allocation to PMAY maintained: Housing is a key segment for the Cement industry, as it accounts for 60-65% of total consumption. In FY24BE – government has maintained allocation to Pradhan Mantri Awas Yojana (PMAY) at Rs796bn – up 3% vs FY23RE (and 66% vs FY23BE). Within PMAY, allocation to the Rural segment has expanded by 13% YoY to Rs545bn, while that to Urban schemes is reduced by 13% YoY to Rs251bn.
• Metro capex see 25% YoY increase: Total allocation to Metros and NCR-TC is up 25% YoY to Rs195bn vs FY23RE. We note that the allocation is flat when compared to last year’s budgeted numbers, implying that execution delays in the current year is expected to be competed in FY24.
• Lower allocation to MNREGA can be offset by other rural schemes: Total allocation under MNREGA is reduced by 33% YoY vs FY23RE and 18% YoY vs FY23BE to Rs600bn. However, for FY23, allocation to this scheme in RE is up 23%, implying that expenditure can be higher than budgeted. Also, some of the other rural schemes have seen higher allocations, such as National Rural Drinking Mission (+27% YoY), which should partially offset any negative impact of lower allocation to MNREGA. As such, Cement companies are confident of rural demand, given the expected good winter crop this year coupled with high crop prices.

Analysts of IIFL Securities believe positive impact of the budget announcements on the cement sector.