Cement dealers staring at 30 per cent demand contraction

Our Bureau Mumbai | Updated on May 18, 2020

Cement dealers across the country expect a significant slackening in sales, elongated credit period to retailers, and higher working capital needs in the wake of the Covid-19 pandemic this fiscal, reveals a Crisil Research survey.

A whopping 93 per cent of the respondents said they expect volumes to shrink 10-30 per cent in fiscal 2021 in the base case scenario, if the lockdown eases in May. Extension beyond this can worsen these figures.

Also, 70-80 per cent dealers felt individual home builders would delay new construction due to gloomy business outlook, fear of income loss, labour shortage, and uncertainty with respect to resumption of normalcy.

Over 60 per cent of dealers are holding low inventories (2-4 days), but spoilage concerns persist. Dealers are hopeful of liquidating inventory by offering discounts as soon as the lockdown eases, to contain spoilage and get volumes going.

On the other side, payment delays from retailers appear inevitable considering these players are small and fragmented, and most likely to delay payments amid liquidity crunch, gloomy demand outlook, and cement spoilage concerns. That, in turn, would stretch the receivables cycle and negatively impact cash flows of the dealers, as much as 95 per cent of whom offer credit.

“The cycle of recovery of retailer dues is expected to extend by 4-6 weeks over and above the usual four weeks. This will potentially increase the working capital requirement of dealers by 12-17 per cent, even as they reduce credit exposure, infuse capital, and curb non-essential expenditure,” said Rahul Prithiani, Director at Crisil Research.

The survey was conducted across more than 100 dealers spread across Tier-I and II centres in 13 states. Trade channels account for about 60 per cent of annual cement sales.

Published on May 18, 2020

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