Even though the demand growth has slowed down, profitability of the cement companies is expected to rise supported by the higher realisations and benign input cost, a rating agency said.
Even though the demand growth has slowed down, profitability of the cement companies is expected to rise supported by the higher realisations and benign input cost, a rating agency said. The demand remained weak in the first eight months of the ongoing fiscal as against 14.2 per cent in the corresponding period the previous year which resulted in a decline in cement prices from June-December 2019 in most markets, ICRA said in a report. However, the rates were escalated in the nine months of FY20 on-year basis, it added. The profitability of the firms is expected to remain on the higher side on account of weak pet-coke, coal and diesel prices in the near term.
“The recently announced National Infrastructure Pipeline of projects involving investment of over Rs. 100 trillion over the next five years would boost demand in the medium term. The medium-term demand drivers remain intact with the government’s focus on low-cost housing and infrastructure”, Anupama Reddy, Assistant Vice President, ICRA Ratings said.
Due to the monsoon season, the cement consumption generally remains on the lower side in Q2FY20. The extended monsoon seasons, sand unavailability and the demand slowdown has negatively impacted the production in Q3 of the ongoing fiscal, ICRA report said. “At the pan-India level, the prices in most markets are higher in 9M FY2020 as compared to the corresponding period of the previous year. In the Mumbai and Hyderabad markets, the prices are higher by 7%-8% and in Delhi, around 20%-25% in 9M FY2020,” the report also said.
Meanwhile, the economy is undergoing a slowdown for some time now. The economy grew at just 4.5 per cent in Q2FY20. The GDP is expected to grow at 5 per cent in the ongoing fiscal on account of both global and domestic factors. Even the IMF and RBI have lowered the growth projections for the Indian economy.