Cement volume growth to hit a decadal high next fiscal: Crisil

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Cement volume growth in India is set to hit a decadal high of about 13% next fiscal, backed by expected revival in demand from the infrastructure and urban housing sectors, and a generous low-base effect, a report from Crisil said.

“Higher spends on infrastructure development would be in line with the 26% 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. Demand from hinterland – the saviour this fiscal – should sustain on the back of higher rural incomes,” said Nitesh Jain, Director, Crisil Ratings.

The increased volume will counterweigh the impact of rising power and fuel costs on cash accruals, and will keep the credit outlook of cement makers stable, an analysis of 15 Crisil-rated cement companies accounting for nearly 75% of sector sales volume, showed.

While volume growth will rebound, higher cost of sales would weigh on cement profitability next fiscal.

Rising prices of diesel, petcoke or coal, and polypropylene bags may push up cost by Rs 150-200 per mt. To be sure, freight, power and fuel constitute almost 55% of the total cost of sales of cement.

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.