Despite an increase in input cost, the domestic cement industry is expected to grow at 4 to 5 per cent Y-o-Y in FY18, driven largely by the demand stemming from infrastructure activities and a revival in housing requirements in rural areas, a report said today. “We have maintained a stable outlook on Indian cement manufacturers for FY18. The operating profitability of cement manufacturers in FY18 is expected to be around the FY16 and estimated FY17 levels, due to stable demand growth, despite an increase in input cost.
“Demand will be backed by an increase in government expenditure. We expects the credit profile of cement manufacturers to remain stable on stable operating profitability and in the absence of debt-led capex,” said the report by India Ratings and Research (Ind-Ra).
The rating outfit expects the cement industry to grow at 4 to 5 per cent Y-o-Y in FY18, driven largely by the demand stemming from infrastructure activities and a revival in housing demand in rural areas, both led by Government spending.
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The price of pet coke and coal has almost doubled since September 2016. The current increase in crude oil prices is also likely to lead to an increase in diesel rates. Ind-Ra expects stable cement demand to enable cement manufacturers to pass on increases in cost during FY18.
Nearly 38 per cent and 23 per cent hike in the allocation of funds towards the housing sector under Pradhan Mantri Awas Yojna and spending of the Ministry of Road Transport and Highways to Rs 290 billion and Rs 649 billion respectively, would increase cement demand in the next fiscal, the report said.
The rating company expects cement producers to add additional 50 MTPA capacity over FY16-FY18 at a CAGR of 6 per cent compared to CAGR of 4.9 per cent during FY13-FY16 (additional 40 mtpa). The country’s eastern region will continue to lead supply growth and is likely to add 17 mtpa through FY16-FY18, followed by north (14 mtpa), it said.
The CAGR capacity additions in the eastern (10%) and northern regions (7%) may outpace cement demand in these regions.
Pan-India capacity utilisation remained stable in FY16 at around 70 per cent. However, Ind-Ra has revised pan-India capacity utilisation for FY17 to 65 per cent from 69-70 per cent due to a weak demand outlook in H2 of FY17 on account of demonetisation.
The rating agency does not expect capacity utilisation to improve significantly in FY18 during which it is likely to remain at around 70 per cent.