PBIT margins of asbestos-based roofing players to improve 8-9% in FY25, FY26: ICRA

27 Jun 2024 Evaluate

Credit rating agency ICRA in its latest report has said that the profit before interest and taxes (PBIT) margins of the asbestos-based roofing players for ICRA’s sample set to improve by 100-200 bps to around 8-9% in FY2025 and FY2026, backed by estimated steady growth in volumes and marginal improvement in realisations. It said the asbestos fibre prices increased at a CAGR of 9.6% during the FY2018 – FY2024 period compared to the modest rise in realisations at a CAGR of 3.1% during the same period, thereby impacting the profitability of the companies. In FY2023, fibre prices had increased by 25%, the highest rise in any year, amidst the Russia-Ukraine conflict, with Russia being the largest exporter of Chrysotile asbestos in the world. Additionally, rupee depreciation and spiking freight costs due to logistical challenges had worsened the price increase.

The report stated that asbestos roofing is predominantly used in rural India due to its affordability, price competitiveness and durability, compared to the alternative options. However, asbestos fibre sheet players are exposed to high regulatory risk. In India, only the Chrysotile variety (also known as white asbestos) of fibre cement, which is considered safe, is used in roofing solutions. The fibre is mixed and bonded with cement and other raw materials, preventing the possibility of escaping into the atmosphere on normal usage. India has banned the mining of asbestos. While the country still permits the import of chrysotile asbestos, many countries have banned all types of asbestos. Given the health hazards, any ban on the mining of asbestos across countries may expose the players to the risk of non-availability of raw materials which can consequently impact the companies’ operations.

According to the report, the market share of the top five companies (in revenue terms) in the asbestos fibre cement (FC) sheet segment is in the range of 80%-82%, implying an oligopoly market structure. The asbestos players largely cater to rural markets, where buyers are extremely price sensitive and the increase in input prices is passed on to customers over a protracted period. The asbestos FC sheets industry is cyclical in nature with Q1 and Q4 of the fiscal generally being the strongest revenue-generating quarters due to the demand, post the rabi and kharif harvest. The demand conditions of the rural economy are dependent on the prospects linked to farm income levels (farm output, minimum selling price movement). The nominal gross value added (GVA) for agriculture saw healthy growth during FY2020 – FY2023, which supported growth in the asbestos roofing industry.

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