Macro Economy

Cement dealers see 30% fall in demand, liquidity crunch

. Our Bureau Mumbai | Updated on May 18, 2020

Cement dealers expect sales volume to fall 30 per cent in this fiscal even as the Central government announced a financial package to pull struggling businesses out of slumber. The drop is expected due the uncertainty on revival of economy and construction activities.

Cement dealers also see a longer credit period to retailers and higher working capital needs in the wake of the pandemic this fiscal, reveals a CRISIL Research survey.

Negative sentiments

The survey was conducted across 13 States to glean insights on the pandemic’s impact. Trade channels account for 60 per cent of annual cement sales. A whopping 93 per cent of the respondents said they expect sales volumes to shrink 10-30 per cent in FY’21, if the lockdown is eased in May.

Extension beyond this can lead to 70-80 per cent fall in sales. 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 of only 2-4 days, but spoilage concerns persist. Dealers are hopeful of liquidating inventory by offering discounts once 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 and gloomy demand outlook. In turn, this would stretch the receivables cycle and negatively impact cash flows of the dealers by 95 per cent. Usually dealers offer credit to retailers.

Rahul Prithiani, Director, Crisil Research, said that 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 about 17 per cent, even as they reduce credit exposure, infuse capital and curb non-essential expenditure,” he added.

Published on May 18, 2020

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