According to research by CRISIL Ratings, cement consumption is predicted to increase at a slower rate of 7-8% on-year to over 475 million tonnes (MT) this fiscal, following a compound annual growth rate of almost 11% between fiscal 2022 and 2024. Nonetheless, it stated that cement companies’ operating profitability is probably going to remain above the decadal average of Rs 963 per tonne, at between Rs 975 and Rs 1,000 per tonne. Credit profiles will remain steady as a result of this and robust balance sheets.
India’s demand for cement increased by only about 3% in the first quarter of the current fiscal year due to a prolonged heatwave and a labor shortage during the general elections. Due to seasonal weakness, it is anticipated to have risen at a similar rate in the second quarter as well, according to CRISIL, which also said that the sector is expected to do well in the second half.
In addition, the robust monsoon this year is expected to boost demand for rural homes, contributing to the rise in the housing segment. Fifty-five to sixty percent of cement demand comes from the housing market. In a similar vein, government expenditures on infrastructure development, which make up around 30% of the market for cement, will also stimulate demand.
The Union Budget’s total allotment to the six key infrastructure sectors related to cement has increased by 6% for this fiscal year, although the overall amount of capital expenditures is still quite high. The government’s capital expenditures are expected to pick up speed starting in the third quarter of this fiscal year, even though actual spending was slow until July. This will increase the demand for cement from the infrastructure sector.
Cash accruals are anticipated to stay strong given the predicted volume growth and consistent profitability. As per the research, individual participants’ financial leverage is anticipated to stay within a limited range (<0.5x) of their current levels because their capital expenditure plans are mainly in line with their cash accruals and capital structure. Their credit profiles will remain steady as a result of this and the players’ continued maintenance of strong liquidity.
Nevertheless, CRISIL notes that a slowdown in building activity or a decrease in infrastructure-related spending may cloud the future for cement consumption. It also said that any unfavorable change in energy and commodity costs (resulting from geopolitical developments) or the incapacity of cement companies to raise prices could have an effect on profitability projections and should be closely monitored.
