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Cement industry set to hit decadal high volume growth of 13% in FY22: Crisil

12 Mar 2021 Evaluate

Crisil Ratings has said that the cement industry is set to hit a decadal high volume growth of 13 percent in FY22, helped by an expected revival in demand from the infrastructure and urban housing sectors. It also said the increased sales volume will counterweigh the impact of rising power and fuel costs on cash accruals and will keep the credit outlook of cement makers stable. It said while volume growth will rebound, higher cost of sales would weigh on cement profitability next fiscal.

According to the report, rising prices of raw materials such as diesel, pet coke or coal, and polypropylene bags may push up cost by Rs 150-200 per tonne. It also said freight, power and fuel constitute almost 55 percent of the total cost of sales of cement. It noted that increasing share of infrastructure and urban housing means a higher proportion of sales will be from the cost-conscious non-trade channels. That would translate to marginally lower net realisation for cement companies.

The report further said higher spends on infrastructure development would be in line with the 26 percent increase in budgetary allocation for infrastructure in the Union Budget 2021-22. That, coupled with pent-up demand in urban housing, will drive volume growth. It also said operating profits could moderate by Rs 200-250 per tonne next fiscal due to higher cost and lower net realisation. However, it said cash accruals won't be affected as higher volumes will offset the impact of lower profit margins.

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