With India's economy headed towards its fourth ever recession in fiscal 2021, production of cement in the country is likely to witness its steepest ever decline in a year of about 30 percent, ratings agency Care Ratings has said in its latest report.
The industry had witnessed an overall 1.3 percent growth in sales revenue in fiscal 2020 which was a steep de-growth over 24.4 percent of 2018-19. Production had fallen by 0.8 percent in fiscal 2020 against a 13.3 percent growth in fiscal 2019. Companies had benefitted from lower cost of raw materials and fuel/electricity that comprises about 70 percent of their total expenses. In the current fiscal however, the industry will be under pressure in the first half before a partial recovery in November and December and a full recovery thereafter.
"The cement industry was already impacted by the general economic slowdown prevalent in the economy and now with the COVID-19 pandemic prevalent, it has further added on to the weakness present in the industry even though the macros seem strong in the long term," Care Ratings said. "Cement production is to fall sharply by 25-30 percent during FY21 and capacity utilisation is to be around 40-45 percent. This will be the steepest ever fall in production (and capacity utilisation) that the industry has ever witnessed."
India is world's second largest consumer as well as producer of cement. In fiscal 2020, the country produced 334 million tonnes of cement. The industry has added significant capacity of almost 150 million tonnes in the last five years on the back of bullish projection of demand from key sectors like infrastructure and housing. A lot of it however did not fructify, which led to a steep fall in capacity utilisation last fiscal when it touched a its lowest level of 61 percent since 2014-15.
"The nationwide lockdown has come at the time when construction activities is at its peak and it will be followed by the monsoon season where again the construction activity will again be impacted thereby affecting entire dynamics of demand-supply for cement," Care Ratings said. Cement manufactures are not expected to make any additions to the existing CAPEX and given the limited demand present there has also been CAPEX deferral announcements."