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The domestic cement demand is expected to be highest in a decade and estimated to surpass 340 million tonnes in FY2022, driven by sustained rural housing demand and significant pick-up in the infrastructure activity.
On the supply side, the capacity additions are also expected to increase by 22-25 million tonnes per annum in FY2022.
As per an ICRA note, while the cement prices are expected to largely sustain at the recently increased levels supported by the improved demand, the higher input costs are likely to exert pressure on operating margins in FY2022. Though this is likely to result in some moderation in debt coverage metrics, they are likely to remain at healthy levels.
Rajeshwar Burla, Vice-President & Co-Group Head, ICRA, in a statement says, “The sentiment in the rural areas is expected to be positive on the back of favourable kharif harvest. The continued focus on agriculture and rural development in the Union Budget of 2021-2022 is expected to boost rural housing demand.”
The Budget has also increased the capital outlay for infrastructure sector. The gross budgetary support towards capital expenditure has been increased significantly to ₹5.54-lakh crore in 2021-22 BE (up 34 per cent from 2020-21 BE, and 26 per cent from 2020-21 RE) with higher allocation towards the infrastructure sector. The pick-up in the construction activity in infrastructure segment is expected to support the cement demand.
On the supply side, capacity additions are expected to be in the range of 15-17 mtpa in FY2021 as against the earlier estimates of around 20 mtpa owing to the Covid-19 pandemic when demand is adversely impacted, and the companies preserved liquidity. The capex is likely to get back to around 22-25 MTPA in FY2022 and FY2023.
Anupama Reddy, Assistant Vice-President & Sector Head, ICRA, adds, “Notwithstanding the capacity addition in FY2022, the debt reliance is likely to remain low owing to the healthy cash generation and strong liquidity of cement-companies.”
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