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Cement volumes expected to grow by 18%-20% in FY2022: ICRA

Published in Corporate Wednesday, 27 January 2021 16:59


Operating margins likely to show moderation because of cost-side pressures, however, continue to remain healthy in FY2022

ICRA expects the cement demand to increase by 18%-20% in FY2022 over FY2021 with the volumes reaching back to around FY2019-FY2020 levels. This is expected to be supported by rural demand, including affordable housing, along with recovery in the infrastructure segment to an extent. This volumetric growth and the industry’s pricing discipline is likely to support the operating margins in FY2022 at around 20%-21%, notwithstanding some cost-side pressures.

 

Giving more insights, Ms. Anupama Reddy, Assistant Vice President, ICRA says: “After a sharp contraction in volumes in FY2021, ICRA expects it to grow by 18%-20% in FY2022. The rural offtake is likely to be supported by the positive farm sentiment with the timely rabi sowing and favourable groundwater and reservoir levels, which are likely to boost rabi yields. The traction in the PMAY-Gramin is expected to continue and the PMAY-Urban has also picked up faster in recent months as against other housing segments owing to low ticket sizes and Government incentives. Although urban housing has also seen a pick-up in the recent months in select markets, the sustainability remains to be seen. In addition, the recent announcements with the focus on the real estate and PMAY-Urban, and the infrastructure sectors as part of the Atmanirbhar Bharat 3.0 package is likely to support cement demand. On the infrastructure side, the pace of execution of projects in the transportation segment - roads, metros, railways and airports - is expected to aid cement volume expansion going forward.”

 

On the supply side, the capacity additions are expected to get back to around 20-22 MTPA (million tonnes per annum) in FY2022 from around 15-17 MTPA in FY2021. The East is likely to lead the expansion and may add around 15-17 MTPA during FY2021-FY2022. With the revival in demand in FY2022 by around 20%, the utilisation is likely to improve to around 64% during the fiscal from the low levels of 56% in the previous year, however, remain at moderate levels.

 

On the input costs front, while the coal prices continue to remain soft, the pet coke prices have increased in the recent months. The diesel prices also have increased in the current fiscal. Further, with the pet coke and diesel prices linked to crude, the prices are likely to remain elevated. Going forward, the coal price levels will remain sensitive to demand from China and India, and to the extent of change in the energy mix from coal to natural gas and renewables, globally.

 

Ms. Anupama Arora, Vice President, ICRA adds: “With the recent order by the Competition Commission of India (CCI) for investigation into the alleged cartelisation by cement companies, any significant increase in the cement prices is unlikely in the near term. The expected increase in the input costs – power and fuel costs and the freight expenses would weigh on the operating margins of cement companies in FY2022. However, the volumetric growth is likely to result in an increase in revenues, supporting absorption of fixed costs. Thus, the increase in volumes and industry’s pricing discipline are likely to support the operating margins in FY2022 at healthy levels, despite some moderation. While a likely increase in debt levels is envisaged owing to the capacity addition, the healthy operating profits and the consequent cash accruals would allow the debt coverage metrics of major cement companies to remain comfortable.”   

 

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