Domestic cement sector to see modest growth in FY20, manufacturers to benefit from continuing demand push: Report
Between 2008 and 2018, cement demand increased at 6.15 percent CAGR, while capacity increased at nine percent CAGR.
India Ratings report said that cement manufacturers are poised to benefit from the continuing demand push
The sector will witness capacity addition of around 20 million tonnes per annum over FY19-FY21
Between 2008 and 2018, cement demand increased at 6.15 percent CAGR
Mumbai: Domestic cement demand is expected to register a modest growth of 6-8 percent in fiscal 2020 mainly driven by the diminishing base effect, increased thrust on infrastructure by the Central government and the affordable housing segment, the report said.
Maintaining a stable outlook for the sector, India Ratings report said that cement manufacturers are poised to benefit from the continuing demand push, led by the healthy growth expected across end-markets such as individual home building, affordable housing, roads and irrigation sectors.
India Ratings believes the capacity utilisations of the cement industry may improve gradually over the next two years on account of limited capacity additions amidst the turnaround of acquired assets.
According to the agency, the sector will witness capacity addition of around 20 million tonnes per annum (MTPA) over FY19-FY21 (with higher addition in FY20), and the capacity utilisation will increase by 120 bps and 200 bps in FY20 and FY21 respectively.
Between 2008 and 2018, cement demand increased at 6.15 percent compound annual growth rate (CAGR), while capacity increased at nine percent CAGR.
As a result, capacity utilisation rates dropped to 64 percent in FY18 from 83 percent in FY08, leading to increased competition and pressure on selling prices. Any further demand-supply imbalance at the regional level may impact the profitability of the players.
"Utilisations are likely to rise but not to the extent that producers would see any increase in pricing power. However, cost pressures will reduce because of stabilisations in input costs and currency movements," the agency said.
The agency further stated that credit metrics of cement manufacturers are likely to deteriorate in the current fiscal on account of mergers and acquisitions, higher capex and increased input cost.
"The net leverage positions are expected to improve, given their strong positions in the regions in which they operate and a stable-to-higher EBITDA per tonne due to steady cement prices and tapering input costs," the agency said.
This coupled with cost-saving measures could lead to a modest improvement in margins in FY20, it added.
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