 "Cement")
The report also revealed that with steady profitability and projected volume growth, “cash accruals are expected to remain healthy”. Photo: Bloomberg
The cement industry is expected to record slower growth of 7 to 8 per cent to 475 million tonnes this fiscal, impacted by lower growth in the first half after registering a double-digit growth from the last two financial years, according to a Crisil report.
The cement demand grew only 3 per cent in the June first quarter of FY2024-25, owing to an extended heatwave and shortage of labour during general elections and is estimated to have grown at a similar pace in the second quarter due to seasonal weakness.
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However, the second half is likely to bode well for the sector, the agency in its report said, adding that the margins would be better this fiscal.
“Cement demand is set to grow slower at 7-8 per cent year-on-year to 475 MT this fiscal, after clocking a compound annual growth rate of 11 per cent between fiscals 2022 and 2024,” the report said.
However, the operating profitability of cement players is likely to sustain at Rs 975-1,000 per tonne, above the decadal average of Rs 963 per tonne, said the report, which is based on an analysis of 18 cement makers, accounting for over 85 per cent of domestic sales volume.
It expects the growth in the housing segment, which accounts for 55-60 per cent of cement demand, will see a likely revival in rural housing demand supported by the healthy monsoon this year.
“Similarly, the government spending on infrastructure development, which accounts for 30 per cent of cement demand, will support demand too,” it said, adding that “though actual spending was sluggish until July, the government’s capex is likely to accelerate from the third a quarter of this fiscal, which will boost cement demand from the infrastructure segment”.
The report expects an increase in government spending on infra projects as the overall quantum of capital expenditure has been increased by 6 per cent for this fiscal in the Union budget.
The report also revealed that with steady profitability and projected volume growth, “cash accruals are expected to remain healthy”.
“Financial leverage of individual players is expected to remain within a narrow range (<0.5x) of their existing levels since their capex plans are largely commensurate with their cash accruals and capital structure. This, coupled with healthy liquidity maintained by the players will keep their credit profiles stable,” it said.
However, the report also cautioned, saying a subdued construction activity or lower infrastructure-related spending could dampen the outlook on cement demand.
Moreover, any adverse movement in commodity and energy prices, stemming from geopolitical developments, or the inability of cement players to increase prices could impact profitability expectations.
There is a sharp decline of 6 per cent in cement prices in the first half of this fiscal.
(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)
First Published: Oct 14 2024 | 5:51 PM IST
