Cement industry to witness improved demand from July 2021
Cement

Cement industry to witness improved demand from July 2021

According to CARE Ratings, the demand for cement will improve in a calibrated manner from July 2021 onwards. CARE Rating states that a double-digit cement volume growth seems unlikely at present for FY22, considering the uncertainty for the constantly evolving covid situation in the country. However, it also states that the profitability for cement players expects to remain healthy during FY22, considering the factors such as expected higher volumes and continuing pricing power enjoyed by cement companies which are likely to balance the cost pressures considerably. In terms of debt, most of the cement companies will be seen to continue their focus on strengthening their balance sheet during FY22. Moreover, the report says that profits for FY22 will remain moderate due to increasing input costs for pet coke, diesel, coal, and packing materials.

Today, the economic conditions of our country remain volatile. Considering this into account, the unlocking process that was earlier predicted for May 2021, has now been pushed to July 2021.This has affected the overall demand for cement for Q1FY22. The second wave came with a lot of uncertainties and shattered the overall demand during the last quarter of FY21. On the one hand, we see that the supply constraints are low because of the reopening of operations for the cement manufacturing companies; however, with a higher rate of infection in the rural areas, the demand for cement from rural areas has weakened.

CARE Ratings expects that for FY22, the domestic cement production may grow by around 4% to 7% y-o-y after two consecutive years of de-growth against the initial estimate of 11% to 14%. Demand for cement will directly depend on factors like the government’s push and spending towards infrastructure creation and development, pent-up urban demand, and continuing rural demand. However, the severity of ongoing pandemic will have a direct impact on the timelines for demand revival for the cement industry.

Looking at Q1FY21, which was severely hit by the pandemic, the industry witnessed a swift recovery wherein domestic cement production reached 88% of pre-Covid levels (88% of Q2FY20), states CARE Rating report. It further reports that during Q2FY21 and for Q3FY21, production was 96% of the corresponding period the previous year. Monthly domestic cement reached pre-Covid levels during March 2021 and was approximating to March 2019 levels. Overall, the domestic cement production has fallen by 12% during FY21 as compared to FY20 as against the initial estimate of de-growth of 25% to 30% made in April 2020.

For FY22, CARE Ratings estimates its entire portfolio of investment-grade cement companies will report stable performance with the aggregate rated debt of around Rs 23,964 cr. Most cement companies will be focusing on strengthening their balance sheets. However, it also states that the profitability for cement players is expected to remain moderate during FY22, due to increasing input costs especially for pet coke, diesel, coal, and packing materials. Furthermore, CARE Rating also states that the liquidity for a majority of the CARE-rated investment grade portfolio is likely to remain strong or adequate in FY 2022.

Some of the key drivers identified by CARE Rating are-

Positives
Increased capital outlay towards infrastructure creation by 26% to Rs 5.54 lakh cr.
Enhanced outlay of Rs118,101 crore for MoRTH of which Rs 108,230 cr is for capital.
Central Counterpart Funding to various metros aggregating to Rs 88,059 cr.
Proposals to further incentivise and boost affordable housing.
Pent up urban demand and continuing rural demand.

Negatives
Slow pick up of demand with ongoing Covid II
Increase in input costs
Excess capacities

According to CARE Ratings, the demand for cement will improve in a calibrated manner from July 2021 onwards. CARE Rating states that a double-digit cement volume growth seems unlikely at present for FY22, considering the uncertainty for the constantly evolving covid situation in the country. However, it also states that the profitability for cement players expects to remain healthy during FY22, considering the factors such as expected higher volumes and continuing pricing power enjoyed by cement companies which are likely to balance the cost pressures considerably. In terms of debt, most of the cement companies will be seen to continue their focus on strengthening their balance sheet during FY22. Moreover, the report says that profits for FY22 will remain moderate due to increasing input costs for pet coke, diesel, coal, and packing materials. Today, the economic conditions of our country remain volatile. Considering this into account, the unlocking process that was earlier predicted for May 2021, has now been pushed to July 2021.This has affected the overall demand for cement for Q1FY22. The second wave came with a lot of uncertainties and shattered the overall demand during the last quarter of FY21. On the one hand, we see that the supply constraints are low because of the reopening of operations for the cement manufacturing companies; however, with a higher rate of infection in the rural areas, the demand for cement from rural areas has weakened. CARE Ratings expects that for FY22, the domestic cement production may grow by around 4% to 7% y-o-y after two consecutive years of de-growth against the initial estimate of 11% to 14%. Demand for cement will directly depend on factors like the government’s push and spending towards infrastructure creation and development, pent-up urban demand, and continuing rural demand. However, the severity of ongoing pandemic will have a direct impact on the timelines for demand revival for the cement industry. Looking at Q1FY21, which was severely hit by the pandemic, the industry witnessed a swift recovery wherein domestic cement production reached 88% of pre-Covid levels (88% of Q2FY20), states CARE Rating report. It further reports that during Q2FY21 and for Q3FY21, production was 96% of the corresponding period the previous year. Monthly domestic cement reached pre-Covid levels during March 2021 and was approximating to March 2019 levels. Overall, the domestic cement production has fallen by 12% during FY21 as compared to FY20 as against the initial estimate of de-growth of 25% to 30% made in April 2020. For FY22, CARE Ratings estimates its entire portfolio of investment-grade cement companies will report stable performance with the aggregate rated debt of around Rs 23,964 cr. Most cement companies will be focusing on strengthening their balance sheets. However, it also states that the profitability for cement players is expected to remain moderate during FY22, due to increasing input costs especially for pet coke, diesel, coal, and packing materials. Furthermore, CARE Rating also states that the liquidity for a majority of the CARE-rated investment grade portfolio is likely to remain strong or adequate in FY 2022. Some of the key drivers identified by CARE Rating are- Positives Increased capital outlay towards infrastructure creation by 26% to Rs 5.54 lakh cr. Enhanced outlay of Rs118,101 crore for MoRTH of which Rs 108,230 cr is for capital. Central Counterpart Funding to various metros aggregating to Rs 88,059 cr. Proposals to further incentivise and boost affordable housing. Pent up urban demand and continuing rural demand. Negatives Slow pick up of demand with ongoing Covid II Increase in input costs Excess capacities

Next Story
Resources

Ajmera Realty launches tree drive on Environment Day

Ajmera Realty & Infra India marked World Environment Day with a large-scale tree plantation initiative—Plant-with-Purpose—across its projects in Mumbai and Bangalore. The drive was inaugurated at Ajmera Manhattan and Ajmera Greenfinity in Wadala, with senior company officials and residents in attendance. The campaign encourages residents to embrace eco-conscious, self-reliant lifestyles by growing useful plants and trees within their communities. Horticulture expert Devendra Bhekar guided residents on creating and maintaining green spaces. Ajmera Realty planted over 500 trees..

Next Story
Resources

Twaron®-reinforced tyre powers Brunel’s solar race car

Teijin Aramid’s Twaron® with circular content will debut in Bridgestone’s race tyres for the 2025 Bridgestone World Solar Challenge, supporting the Brunel Solar Team’s Nuna 13 car. This marks the first use of the recycled-content aramid in a high-performance race tyre. The Twaron®-reinforced belts help enhance durability, reduce rolling resistance, and maintain lightweight strength—critical for the 3,000-km solar race across Australia. Bridgestone combines this with ENLITENTM tech and other recycled inputs to maximise environmental and performance outcomes. Teijin Aramid, a..

Next Story
Building Material

Kamdhenu Paints launches new wood coating range

Kamdhenu Paints has launched a comprehensive premium wood coating range designed for both interior and exterior applications. The collection includes high-performance solutions like Kamwood 2K PU for a rich matt or high-gloss finish, Kamwood 1K PU for clarity and stain protection, and the Kamwood Melamyne system for a smooth, durable finish. Also featured are Kamwood Wood Stains, which enhance wood grains with vibrant colour, and NC Sanding Sealer for high-build grain filling. The range is supported by Kamwood Thinners for ease of application and optimal finish. Saurabh Agarwal, MD, ..

Advertisement

Advertisement

Subscribe to Our Newsletter

Get daily newsletters around different themes from Construction world.

STAY CONNECTED

Advertisement

Advertisement

Advertisement

Advertisement

Talk to us?