Cement companies push the pedal on green energy

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Crisil Ratings, green power (including WHRS) accounted for 30-35% of the sector's total power mix in FY23, and this number is expected to rise to 40-45% by FY27. Ambuja Cement Ltd recently announced an investment of ₹6,000 crore in install solar and wind power. Close competitor UltraTech Cement Ltd aims to raise its green-energy portion from 22% to 60% by FY26.

But meaningful decarbonisation will be a slow process as the results of these changes will take time to manifest. Other challenges include long gestation periods, time-consuming regulatory approvals, and high costs. "While alternative fuels are increasingly used to replace coal/petcoke, full substitution is technically challenging as these organic materials have 20-25% lower calorific value than fossil fuels," said Miren Lodha, director, research, Crisil Market Intelligence & Analytics.

For an energy-intensive industry such as cement, which uses coal and petroleum coke as primary fuels, reducing carbon footprint is a step in the right direction. But this alone is not enough to drive earnings upgrades for cement makers. In a competitive landscape, stock prices will continue to hinge on demand and prices.

Kotak Institutional Equities estimates 10% year-on-year growth in cement demand in FY24 on pre-election tailwinds. Its channel checks show that all-India prices increased 3% sequentially in Q3FY24 to ₹401 a bag, led by sharp front-end price hikes in the southern and eastern regions. But the question is whether higher prices can be sustained going forward.