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Profitability of cement companies likely to rise despite near flat demand: ICRA

30 Jan 2020 Evaluate

Ratings agency ICRA in its latest report has said despite near flat demand for cement, the profitability of domestic cement companies is expected to rise supported by the higher realisations and favourable input costs. It noted that cement demand remained weak in the first eight months of the ongoing fiscal (8M FY20) as compared to 14.2 percent in the corresponding period the previous year which resulted in a decline in cement prices from June-December 2019 in most markets.

However, the report stated that the prices remained on a higher side in the nine months of FY20 on-year basis. It said 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. Besides, it stated that 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. It added that the medium-term demand drivers remain intact with the government's focus on low-cost housing and infrastructure.

According to the report, due to the monsoon season, the cement consumption generally remains on the lower side in Q2FY20. It pointed out that the extended monsoon seasons, sand unavailability and the demand slowdown has negatively impacted the production in Q3 of the ongoing fiscal. Further, it 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. It noted that in the Mumbai and Hyderabad markets, the prices are higher by 7%-8% and in Delhi, around 20%-25% in 9M FY2020.

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