Economy

Sharp fall in cement demand likely due to lower government spending

Our Bureau Mumbai | Updated on September 04, 2019 Published on September 04, 2019

However, profit margins to hit 6-year high on stable prices, lower cost

Cement demand this fiscal is set to more than halve to 5.5 per cent from 12 per cent logged in last year largely due to lower spending by the government which accounts for about 40 per cent of the demand.

This apart, real estate sector, which adds up to 5-8 per cent of demand, is hit by liquidity crunch, labour shortage, sand and water availability in key states.

All India cement demand fell two per cent in the first quarter of this fiscal with the east and north logging a fall of 4-5 per cent and 1.5 per cent, respectively.

The impact of cyclone Fani also weighed on structurally weak demand factors in Bihar, Odisha and West Bengal. Further funding challenges stalled various institutional projects in Andhra Pradesh and Telangana.

Prasad Koparkar, Senior Director, Crisil Research said demand growth in the second half will be much better at 8-10 per cent led by gradual pick up in government’s fund release for institutional projects post higher payout from RBI.

Despite the improvement, volume growth will remain under a cloud due to higher base of last year.

Profit to look up

However, chunky price hikes in the first quarter will drive revenue growth. All India cement prices had increased by Rs 56 per bag (January to May) to Rs 380 per 50 kg bag as of May before falling to Rs 355 in August.

Hetal Gandhi, Director, Crisil Research said EBITDA margin of the industry is expected to increase 4 per cent to touch six-year high this fiscal on lower cost.

South India had seen a sharp price hike of Rs 70 per bag over January-May but has come off by Rs 38 per bag since then, given the fall in demand. Cement prices in North and Central markets may come under pressure with additional 14-15 tonnes of capacities.

Cement companies will also benefit from falling global commodity prices. Power and fuel cost, which accounts for 26 per cent of operating cost, is expected to reduce by 3-5 per cent this fiscal with softening in pet coke and coal prices.

Published on September 04, 2019
This article is closed for comments.
Please Email the Editor