With pick-up in the affordable and rural housing segments and infrastructure, primarily road and irrigation projects, domestic credit rating agency, ICRA in its latest report has said that domestic cement output is likely to register a growth of 6 percent in the financial year 2019. However, it cautioned that in the coming quarters, rising input costs are likely to keep cement companies’ profits under pressure. Besides, it highlighted that in FY18, cement production registered a growth of 6.3 percent at 298 million tonnes, as compared to 280 million tonnes in FY17, with the bulk of growth reported during the second half of FY18, buoyed by better demand in key markets.
In terms of capacity addition, the rating agency expects around 19-22 million tonnes per annum (MTPA) to get added in FY19, primarily in the eastern part of the country. It pointed out that while the additions have been relatively on the lower side during FY17-FY18, the capacity overhang and moderate demand growth is likely to continue to keep the capacity utilisation level below 70 percent over the next two years. It noted that the Budget of FY19 also supports with higher rural credit, increased minimum support price, increased allocation for the rural, agricultural and allied sectors, along with continued focus on the Pradhan Mantri Awas Yojana and infrastructure investments.
According to the report, cement demand from rural housing saw a pick-up, post monsoons, following an improvement in the rural economy as a result of normal monsoons. It also stated that lumpy capacity additions in the recent past have led to an increase in debt levels and some deterioration in credit metrics, although they still remain at comfortable levels for most of the larger players.