With the pandemic hindering construction activity, cement demand was severely impacted in the first half of FY21. But green shoots are visible, according to Mahendra Singhi, MD & CEO, Dalmia Cement (Bharat). Excerpts from an interview:
How has the pandemic impacted the demand scenario for cement manufacturers?
From the start of the lockdown, (March 24) as everything came to a halt, demand was almost negligible. When the lockdown was partially lifted (April 20 onwards), we saw demand recovering to some extent, particularly in parts of the country with fewer red containment zones. The pick-up in demand was gradual and it sustained through May, June and part of July, up until the onset of monsoon. Post that, there has been a seasonal weakness in the latter part of July and all of August.
Regionally, the West was the weakest followed by South India. In East India, particularly, Bengal, Bihar and Assam, heavy rain and floods led to a drop in cement demand. Same was the case in Karnataka and Maharashtra in August.
The industry has seen the dual impact of both Covid-19 and monsoon, this year.
If one were to observe the industry data (based on media reports and IIP (Index of Industrial Production) data; the Cement Manufacturers Association does not get any such formal data), then there has been almost a 36 per cent drop in demand (y-o-y) till August 2020.
Breaking down the demand, we observed that the rural demand was faster to pick up. While there has been a seasonal weakness in demand, of late, in addition to frequent lockdowns in a few States, the resumption of work at road projects (both NHAI (National Highways Authority of India) and otherwise) are positives.
I would say that in July and in a major part of August the demand from the road sector has resumed to 85 per cent of pre-Covid levels. Further, we expect the Centre’s push towards affordable housing to spur demand.
Another major consumer was Metro Rail projects. However, the execution of projects has been slower than expected.
Has the rural story played out already for cement demand?
We expect rural demand to be buoyant from October, owing to a few reasons. One, with the Centre’s measures to support rural areas and migrants — cash doles to farmers and through MGNREGA (National Rural Employment Guarantee Act) — we expect healthy money supply in rural India. This may help revive demand. Two, we are expecting that from October onwards, things will look better, as monsoon will be over by then in most parts.
Three, infra projects, where the work usually slows down due to Durga Puja and Diwali holidays, might not see much of a disruption this year. Four, with upcoming State elections in Bihar in November and West Bengal early next year, government spending on infrastructure is expected to further improve demand growth.
By the March quarter, one can expect demand to at least reach the same level as last year. All this can likely contain the demand drop for FY21 to an estimated 15 per cent. However, stretched State finances and the likelihood of Covid-19 spreading (further) in rural areas could act as a bummer.
Demand slowdown from urban construction and infra projects was already evident for most part of FY20. Now, with reverse migration due to the pandemic, the situation has got only worse. When do you see recovery here?
Things were slowing down in this segment from September- October 2019. Investments in the industry were not increasing and, as a result, new projects were not coming up. Investors were not quite confident about the overall GDP growth of the country, which further dampened the real-estate demand.
The demand from new industries was low and that has continued even now.
From here on, it all depends on the government policies as well as the Covid-19 situation.
The June quarter numbers of listed players reflect how the cement demand was skewed towards the trade segments.
This can largely be attributed to weakness in the infrastructure segment.
But, from the March quarter of 2021, we expect the trade and non-trade segment ratio to return to normal levels.
Now, there is uncertainty about the demand that has to come up from major projects, urban cities or real estate. Normally, things tend to become better in the last quarter, but it also depends on the Centre, and its ambitious National Infrastructure Pipeline (NIP).
Do any supply-side constraints remain?
Initially, just after the lockdown, there were some challenges with regard to transportation, as a lot of drivers had migrated back to their villages. However, we proactively reached out to all our transporters and things started to fall back in place gradually. Since we rely heavily on road transport, with continuing issues with road transportation, we resorted to transporting our material via railway.
However, now things are almost getting back to normal across the industry, though district- or State-level lockdowns are causing some disruptions.
South continues to be challenging in terms of demand, and also in terms of transportation and availability of labour.
Also, there was some bit of liquidity concerns, mainly at the sub-dealer or small dealer levels. Dealers who did not have online payment support faced more challenges. However, now things are better. From a company’s perspective, our collections from our dealers are also starting to improve.