Construction may see degrowth of -6.5% in FY2021
Forecast for GDP growth now -6.4 per cent for FY2021: CARE Ratings. July 2020
Outbreak of the COVID-19 pandemic in the Indian sub-continent which forced the government to announce a nationwide lockdown, 25th March 2020 onwards affected the domestic cement production during FY20. Construction activity across the country was halted, which is normally at its peak in the month of March, affected the cement offtake. Production fell by 24.7 percent during March 2020 as compared with the 15.7 percent growth achieved during March 2019.
National Infrastructure Pipeline: Of the total projects of the NIP, 42% are under implementation while 19% are under development, 31% are at the conceptual stage and 8% are yet to be classified. The sectors that will be of focus will be roads, railways, power (renewable and conventional), irrigation and urban infrastructure. These sectors together are to account for 79% of the proposed investments in the 6 years period to 2025. Given the government’s thrust on infrastructure creation, it is likely to benefit the cement industry going forward.
Affordable Housing: Under the Pradhan Mantri Awaas Yojana (PMAY) the centre had introduced the credit link subsidy scheme, in May 2017, which was initially extended till March 31st, 2020 but now has been extended for one more year till March 2021. The credit link subsidy scheme has benefitted 3.3 lakh families till now and aims to benefit another 2.5 lakh to get affordable houses.
Financials The overall sales revenue has increased by only 1.3% during FY20 as compared with the 24.4% growth rate achieved during FY19. Overall expenditure has declined by 4.5% which has benefitted the industry largely given the moderation in sales. Selling and distribution, cost of raw materials and fuel/electricity cost encompass around 70% of the total expenses for cement manufacturers.
- Electricity and fuel cost have declined by about 12.7% during FY20 due to the sharp drop in crude oil prices.
- Logistics costs which are the biggest cost for cement industry has also dropped by 7.9% (selling and distribution) as the railways extended the benefit of exemption from busy season surcharge.
- Cost of raw materials too declined by 4.4% given the price of limestone of had also fallen by 9.6% during FY20
Cement manufactures are not expected to make any additions to the existing CAPEX and given the limited demand present there has also been CAPEX deferral announcements.
The nationwide lockdown has come at the time when construction activities is at its peak and it will be followed by the monsoon season where again the construction activity will be impacted thereby affecting entire dynamics of demand-supply for cement.
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