The cement industry is ready to hit a decadal excessive quantity development of 13 per cent within the subsequent fiscal, helped by an anticipated revival in demand from the infrastructure and concrete housing sectors, based on Crisil Rankings.
The elevated gross sales quantity will counterweigh the impression of rising energy and gas prices on money accruals and can preserve the credit score outlook of cement makers secure, the ranking company mentioned.
“Whereas quantity development will rebound, increased price of gross sales would weigh on cement profitability subsequent fiscal,” it mentioned.
Rising costs of uncooked supplies reminiscent of diesel, pet coke or coal, and polypropylene luggage might push up price by Rs 150-200 per tonne, it mentioned including that freight, energy and gas represent nearly 55 per cent of the entire price of gross sales of cement.
“Growing share of infrastructure and concrete housing means a better proportion of gross sales can be from the cost-conscious non-trade channels. That will translate to marginally decrease internet realisation for cement corporations,” the company mentioned.
Commenting on the report, Crisil Rankings Director Nitesh Jain mentioned demand from the hinterland, which was a saviour for the cement industry within the pandemic impacted FY21, ought to maintain on the again of upper rural incomes.
“Larger spends on infrastructure growth can be in keeping with the 26 per cent enhance in budgetary allocation for infrastructure within the Union Price range 2021-22. That, coupled with pent-up demand in city housing, will drive quantity development, he mentioned.
Working earnings may average by Rs 200-250 per tonne subsequent fiscal on account of increased price and decrease internet realisation, mentioned Crisil Analysis Director Isha Chaudhary.
Nevertheless, money accruals will not be affected as increased volumes will offset the impression of decrease revenue margins, she added.
“Larger money accruals will preserve the online debt to EBITDA ratio salutary at 1.4-1.5 instances subsequent fiscal, regardless of a rise in capital expenditure,” Chaudhary mentioned.
Whereas speaking concerning the pandemic impacted FY21 for the cement trade, the report mentioned it could have a quantity decline of as much as 2 per cent.
“The swift restoration after a 31 per cent contraction within the first quarter this fiscal ought to restrict the amount decline to simply 1-2 per cent for the total fiscal,” it mentioned.
Firms had slowed down Capex and selected to preserve money amid demand disruption. In addition to, ample liquidity and robust steadiness sheets have cushioned the impression of the pandemic on the credit score profiles of cement corporations.
“Incremental rural demand has offset the droop in city housing and infrastructure. The demand rebound ought to spur growth plans and the CAPEX run price may return to the Rs 12,000-14,000 crore annual run price from subsequent fiscal, it mentioned.
The report additionally added that well timed launch of funds for key housing and infrastructure tasks as introduced within the price range for the subsequent fiscal can be essential for the anticipated demand development.
Furthermore, any resurgence of COVID-19 instances may derail financial restoration and can subsequently bear watching, Crisil added.