The Street’s focus currently remains on demand growth and a meaningful pick-up in realization, say analysts
Cement companies are sharpening their focus on decarbonization by making fresh investments in installing waste heat recovery systems (WHRS), which traps the enormous heat generated during the manufacturing process and generates electricity, which can be used as an additional source of power. In simple terms, this method reduces carbon dioxide emissions by limiting the use of fossil fuels.
This will not only cut energy costs, but also helps cement companies to score better on the environmental, social and governance (ESG) parameter, said analysts.
An analysis by Antique Stock Broking Ltd shows that power generation cost per kilowatt-hour via WHRS is one-fifth to one-seventh the cost of power generation as compared to thermal power.
When compared with grid power, it is less than one-eighth to one-tenth of the purchase cost, said the domestic brokerage.
In its recently announced capacity additions, cement major UltraTech Cement Ltd said it is adding 57 megawatts (MW) of WHRS across its clinker expansions, which will help increase its share of low-cost green power from the existing 13% to 34% in three years.
Peers Ambuja Cement Ltd and ACC Ltd, which operate under parent LafargeHolcim, are collectively investing more than ₹780 crore to build a WHRS capacity of over 76MW. Shree Cement Ltd, Dalmia Bharat Ltd and JK Cements Ltd are among other cement makers that are also investing in WHRS to boost their energy efficiency.
Globally, cement is among the sectors that have a significant carbon footprint. So, the ongoing WHRS investments are a step in the right direction.
While all this is good, the Street’s focus currently remains on demand growth and a meaningful pick-up in realization, said analysts.
“ESG is gaining prominence among cement companies, which is positive, but a valuation re-rating depends on how soon fundamental factors, such as volume growth, fall in place. The ESG concept is still evolving in India, it is unlikely for the market to assign these companies a higher valuation multiple just for being socially responsible. Investors don’t buy these stocks only because they are environmentally conscious. The latest order by the fair trade regulator alleging some cement companies of cartelization is a dampener. So, negative developments like these mostly overshadow the long-term positives of being ESG-compliant," said an analyst with a domestic broking house, requesting anonymity.
In short, the rising share of waste heat recovery power in the overall fuel mix would help save costs. However, these benefits would take time to reflect in the balance sheets of cement makers. For now, higher input costs are expected to start weighing on operating margins from the March quarter.