India's cement sector is likely to reverse the sluggish growth trend seen over last six years, as the demand is expected to outpace supply in the next three fiscal years, rating agency Crisil said in a report on Monday.
Such a bullish scenario will likely emerge in the cement sector supported by government's focus on affordable housing, spending boost on roads, railways and urban development, the agency said.
Incremental demand for cement is seen doubling to 48 million tonne (MT) over past three fiscals, but incremental supply is seen moderating by a fifth to 31 MT from 39 MT, the report said.
“We foresee a sharp recovery in demand this fiscal after demonetisation dealt a major blow leading to a 1.2 percent de-growth last fiscal. The industry should be able to rack up 5-6 percent compound annual growth rate between this fiscal and 2020, or nearly twice as fast as between fiscals 2015 and 2017," said Sachin Gupta, Senior Director at Crisil Ratings.
In its report, Crisil said synergies from the flurry of acquisitions last fiscal and steady realisations too will help improve cash accruals in the sector despite an increase in power and fuel costs.
Last fiscal was a landmark year that saw the sector signing Rs 32,000 crore of acquisitions. That’s the biggest consolidation the sector has seen in a year, and was financed through debt of Rs 25,000 crore, it noted.
However, Crisil warned that any curb in government spending could result in a slower-than-expected demand from the infrastructure sector, thereby, hitting the cement sector. The implementation of the Real Estate (Regulation and Development) Act, 2016, could also have a short-term impact on volume growth, the agency said.
In April, another rating firm, CARE Ratings, said in a report that cement consumption would witness a growth of 3-4.5 percent in the current year on the back of government's thrust on infrastructure and road sector spending.
Updated Date: Jun 19, 2017 15:39 PM