Resilient demand, moderate capacity addition, tapering costs
Cement

Resilient demand, moderate capacity addition, tapering costs

India Ratings and Research (Ind-Ra) has maintained a stable outlook on the cement sector for FY2020. Cement manufacturers are poised to benefit from the continuing demand push, led by the healthy growth expected across end-markets such as individual home building, affordable housing, roads and irrigation sectors. The agency expects the momentum to continue in FY2020, propelled by government-led spends in roads and affordable housing schemes. Utilisations are likely to rise but not to the extent that producers would see any increase in pricing power. However, cost pressures will reduce because of stabilisations in input costs and currency movements. This coupled with cost-saving measures could lead to a modest improvement in margins in FY2020.
 
Ind-Ra expects cement demand to grow by a modest 6 per cent to 8 per cent over the next year, driven by the diminishing base effect, increased thrust on infrastructure by the Central Government and various state governments, and the affordable housing segment.
Over the past three quarters, the profitability (EBITDA/tonne) of cement companies has been tested by the increasing costs of inputs, especially power, fuel and freight, as the players have not been able to pass on the rise in full to the customers due to the demand-supply imbalance. Consequently, the companies are expected to post poor results in FY2019. However, considering the downtrend in fuel prices since October 2018, Ind-Ra expects the cost headwinds to moderate in FY2020. This would lend further support to the margins.

The credit metrics of cement manufacturers are likely to deteriorate in FY2019 on account of mergers and acquisitions, high capex and increased input cost. For the issuers rated by Ind-Ra, the net leverage positions are expected to improve, given their strong positions in the regions in which they operate and a stable-to-higher EBITDA per tonne due to steady cement prices and tapering input costs.
The agency believes the capacity utilisations of the cement industry would improve gradually over the next two years on account of limited capacity additions amid the turnaround of acquired assets. According to Ind-Ra, the sector will witness capacity addition of around 20 mtpa over FY2019-FY2021 (with higher addition in FY2020), and the capacity utilisation will increase by 120 bps and 200 bps in FY2020 and FY2021, respectively. Between 2008 and 2018, demand increased at 6.15 per cent CAGR, while capacity increased at 9 per cent CAGR. As a result, capacity utilisation rates dropped to 64 per cent in FY2018 from 83 per cent in FY2008, leading to increased competition and pressure on selling prices. Any further demand-supply imbalance at the regional level may impact the profitability of the players.

India Ratings and Research (Ind-Ra) has maintained a stable outlook on the cement sector for FY2020. Cement manufacturers are poised to benefit from the continuing demand push, led by the healthy growth expected across end-markets such as individual home building, affordable housing, roads and irrigation sectors. The agency expects the momentum to continue in FY2020, propelled by government-led spends in roads and affordable housing schemes. Utilisations are likely to rise but not to the extent that producers would see any increase in pricing power. However, cost pressures will reduce because of stabilisations in input costs and currency movements. This coupled with cost-saving measures could lead to a modest improvement in margins in FY2020. Ind-Ra expects cement demand to grow by a modest 6 per cent to 8 per cent over the next year, driven by the diminishing base effect, increased thrust on infrastructure by the Central Government and various state governments, and the affordable housing segment.Over the past three quarters, the profitability (EBITDA/tonne) of cement companies has been tested by the increasing costs of inputs, especially power, fuel and freight, as the players have not been able to pass on the rise in full to the customers due to the demand-supply imbalance. Consequently, the companies are expected to post poor results in FY2019. However, considering the downtrend in fuel prices since October 2018, Ind-Ra expects the cost headwinds to moderate in FY2020. This would lend further support to the margins.The credit metrics of cement manufacturers are likely to deteriorate in FY2019 on account of mergers and acquisitions, high capex and increased input cost. For the issuers rated by Ind-Ra, the net leverage positions are expected to improve, given their strong positions in the regions in which they operate and a stable-to-higher EBITDA per tonne due to steady cement prices and tapering input costs.The agency believes the capacity utilisations of the cement industry would improve gradually over the next two years on account of limited capacity additions amid the turnaround of acquired assets. According to Ind-Ra, the sector will witness capacity addition of around 20 mtpa over FY2019-FY2021 (with higher addition in FY2020), and the capacity utilisation will increase by 120 bps and 200 bps in FY2020 and FY2021, respectively. Between 2008 and 2018, demand increased at 6.15 per cent CAGR, while capacity increased at 9 per cent CAGR. As a result, capacity utilisation rates dropped to 64 per cent in FY2018 from 83 per cent in FY2008, leading to increased competition and pressure on selling prices. Any further demand-supply imbalance at the regional level may impact the profitability of the players.

Next Story
Infrastructure Urban

Daikin Boosts Haryana’s Innovation Push with Rs 10 billion R&D Plan

Japanese multinational Daikin Industries has committed an investment of Rs 10 billion to set up a new research and development centre in Haryana. The proposed facility will focus on advanced technologies and sustainable industrial solutions, marking a significant boost to the state’s innovation and industrial ecosystem. The announcement follows the signing of a Memorandum of Understanding (MoU) in Osaka, Japan, during a visit by a Haryana government delegation held from October 6 to 8. The MoU was signed by Amit Kumar Agrawal, Commissioner and Secretary, Industries and Commerce Department, ..

Next Story
Building Material

Lloyds Metals to Build Rs 250 billion Steel Plant in Gadchiroli

Lloyds Metals & Energy Limited (LMEL) has announced an investment of Rs 250 billion aimed at transforming Gadchiroli in Maharashtra from a region once associated with the red corridor into a key industrial and growth hub. The company’s plans are centred on establishing an integrated steel production ecosystem, which will contribute significantly to regional development and employment. As part of its expansion strategy, LMEL is setting up a 4.5-million-tonne blast furnace in Gadchiroli, scheduled for completion by 2027–28, along with another 1.2-million-tonne facility in Chandrapur by 2029..

Next Story
Infrastructure Urban

UPI Crosses 500 Million Users, Fuels MSME and Digital Growth

The Unified Payments Interface (UPI) has achieved a new milestone, surpassing 500 million consumers and 65 million merchants across India. The platform, developed by the National Payments Corporation of India (NPCI), has expanded its reach to nearly 99 percent of the country’s pin codes, underlining its deep penetration into both urban and rural markets. According to a report by NPCI and the Boston Consulting Group (BCG) launched during the Global Fintech Fest 2025, UPI has evolved from being a digital payments mechanism into a key enabler of financial inclusion and small business growth. I..

Advertisement

Subscribe to Our Newsletter

Get daily newsletters around different themes from Construction world.

STAY CONNECTED

Advertisement

Advertisement

Advertisement

Talk to us?