Cement Capacity Utilization to Remain Low in FY21, says Reports

Team Industry Outlook | Thursday, 05 March 2020

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In its latest Cement Outlook FY21 report, India Ratings and Research has observed a stable outlook on the cement industry for fiscal year 2021. The cement demand is likely to be around 5 percent during the year, due to slight increase in infrastructure spending and housing segment.

As government increases budget allocations for the development of infrastructure, infrastructure growth is likely to pickup. The government recently unveiled 102 lakh crore national infrastructure plan with a vision to make India to make India a five trillion dollar economy by 2025. This is considered to be a major push for infrastructure development in the country.

However, a continued oversupply along with less than 70 percent capacity utilisation is expected to limit the profitability in the industry. The industry is expected to gradually deleverage in FY21, due to EBITDA generation from acquired capacities by large players. Powered by the availability of cash balances along with healthy free cash flow generation and unutilized bank lines, the liquidity position of rated cement companies will remain strong, as per the India Ratings and Research.

Apart from India Ratings and Research, credit ratings agencies such as ICRA and Crisil have also forecasted low demand for cement compared in the FY21. "Incremental supplies are not fully integrated and most of it is backed by old limestone mining leases. Also, given that the grinding capacity addition is higher in relation to the clinker capacities for new units, the actual production from new capacities could be lower," said ICRA Assistant Vice-President Anupama Reddy.

Crisil expects cement companies to report healthy operating profitability of 20 percent in the next fiscal due to an expected recovery in demand. "Next fiscal, we anticipate volume growth recovering to 5-6 per cent from 0.5-1 per cent estimated for this fiscal. Demand growth in the infrastructure and affordable housing sectors on a lower base should support volume growth. These two sectors together contribute almost 35-40 per cent of cement demand in India," Crisil Research Director Hetal Gandhi said.