• Friday, November 15, 2024
businessday logo

BusinessDay

Infrastructure projects seen boosting cement makers’ profits in H2

Infrastructure projects seen boosting cement makers’ profits in H2

Analysts at CardinalStone research have said that the Nigerian cement sector will report a revenue boost in the second half (H2) of 2024, driven by a surge in public sector demand and government-backed infrastructure projects.

They said that an elevated pricing environment will boost their top lines, noting however that severe cost pressures, higher energy prices, haulage costs, FX losses, and a higher effective tax rate in 2024 are likely to pressure margins.

“The outlook for the cement industry is largely positive on the back of the Federal Government’s capital expenditure drive, which includes a N10 trillion allocation in the 2024 budget and an additional N6.2 trillion supplementary budget,” the analysts said.

The report highlighted that key projects like the Lagos-Calabar Coastal Road and the Abuja-Kano Expressway are all scheduled for completion by 2024.

This strong government spending, channeled through initiatives such as the Renewed Hope Infrastructure Development Fund (RHIDF), is expected to drive cement demand and subsequently bolster the Industrial Goods Index, which tracks the sector’s performance on the NGX with three leading players namely Dangote Cement, BUA Cement, and Lafarge Africa.

BusinessDay had earlier reported that Dangote Cement Plc, BUA Cement Plc, and Lafarge Africa Plc recorded a combined after-tax profit of N253.4 billion, a decline from N277.6 billion in H1 2023.

Read also: Cement sector leads growth as Nigeria’s PMI expands to 50.5 points in Sept – CBN

“Despite the challenges of elevated inflation, high borrowing costs, and a further weakening of the currency in the first six months of the year, our business demonstrated strong resilience,” said Arvind Pathak, chief executive officer of Dangote Cement, in the company’s earnings report.

The analysts disclosed in the report entitled, ‘Public demand to boost topline amid cost pressures,’ that the cement industry has shown signs of recovery from the challenges faced in 2023, as volume across the three major players scaled by 11.3 percent YoY 15.6 million metric tonnes (MMt) in H1’24.

“We maintain our volume forecast for FY’24E at 32.26 MMt, driven primarily by robust public sector demand, supported by the Federal Government’s commitment to infrastructure development,” it said.

In Q1’24, cement prices surged, reaching up to N15,000 per 50kg bag. Despite a January 2024 agreement between the federal government and cement producers to lower prices based on ex-factory rates, costs remain elevated due to ongoing pressures.

However, BUA Cement may slow price increases to gain market share following its new plant capacity expansion, the report said.

Similarly, DanCem’s 6.0MMt Itori plant is expected to be completed in 2025, bringing the company’s Nigerian capacity to 41.25MMt while Lafarge appears to be leading the pack on this front, following its sustained focus on debottlenecking its existing capacity in its Ewekoro and Ashaka plants.

“Consequently, we project the sector’s capacity utilisation rate to settle at 51.3 percent in FY’24 (compared to 49.4 percent in FY’23), moving it closer to the 5-year average of 51.5 percent,” the analysts said.

Join BusinessDay whatsapp Channel, to stay up to date

Open In Whatsapp