Cement industry may see moderate growth in FY19 despite pick-up in demand: ICRA

10 Apr 2018 Evaluate

Domestic credit rating agency, ICRA in its latest report has said that the cement industry is likely to witness moderate growth of around 5 percent in the financial year 2018-19, despite a pick-up in demand in recent months and healthy outlook ahead. It also noted that rising energy and freight costs due to higher pet coke, coal and diesel prices during FY18, can hit the profitability margins and debt metrics of cement companies in the coming quarters. It added that the cement demand has picked up from Q3 FY18 and the trend is expected to continue in Q4 FY18, but the growth of the industry may remain flat at 5 percent in FY19.

The rating agency has said that demand for cement has picked up in the recent months, October 2017 to January 2018 by 13.4 percent, on the back of low-cost housing in the eastern markets, Andhra Pradesh and Telangana along with the infrastructure demand from the eastern, southern and western markets. However, it pointed out that the sand availability issues persist in Rajasthan, Uttar Pradesh, Bihar and Tamil Nadu, which are adversely impacting the demand in these regions. Besides, it stated that a pick-up in the affordable and rural housing segments and infrastructure - primarily road and irrigation projects - is likely to continue the demand growth momentum of around 5 percent in FY19.

According to the report, Budget FY19 has provided higher rural credit, increased minimum support price (MSP) for all crops, and allocation for rural, agricultural and allied sectors and stressed on continued focus on the Pradhan Mantri Awas Yojna (PMAY) and infrastructure investments. However, it expects the capacity overhang and the moderate demand growth to continue to keep the industry's capacity utilisation level close to 65 percent over the medium-term. Further, it said that in Q3 FY18, cement prices remained largely similar on a quarter-on-quarter basis in most markets, except Hyderabad, where they witnessed a decline by 5 percent. It added that in other markets, a pick-up in the demand supported prices have continued to remain largely stable in January to February compared to Q3 FY18.

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