NEW DELHI: Reflecting a slowdown in overall construction activity and the subsequent fall in demand, cement companies saw sales volumes contract during the first quarter, with data from 14 listed cement majors showing total volumes sold fell by 1.6 per cent year-on-year and by 13.4 per cent from last quarter.
According to analysts, the fall in demand comes primarily due to the virtual halt in government-led infrastructure activity during the first quarter.
“A slowdown in government-infrastructure-led demand (given elections) led to the volume decline,” JM Financial Services said in a research report.
However, the impact on revenues and profitability were mitigated by the stabilisation of prices at comfortable levels between February and May, driving both revenues and EBIDTA upward for the sector.
Demand to pick up in H2
While industry representatives note that the stalling of construction activity due to the monsoon has led to demand and prices falling in June and July, they also expect the situation to improve in the second half of the year, riding on the revival in government infrastructure activity, both at the state and the Centre.
N Srinivasan, vice-chairman and managing director, India Cements Ltd, pointed out that while the entire cement industry had to be content with a marginal growth of 1.2 per cent in the first quarter (compared to 13 per cent in Q1FY19), “demand is expected to revive post the monsoon, with good rainfall reported across the country, and once the new governments in Andhra Pradesh and the Centre start implementing development schemes”.
According to JM Financial’s Roshan Paunikar and Abhishek Anand, the industry is expected to grow at 6-9 per cent for the full financial year FY20 despite the volume decline in Q1 and muted growth being witnessed in the second.
Conditions are also expected to improve on the profitability front as raw material costs (including petcoke, coal and slag) have declined over the last two months and the benefits are expected to reflect on balance sheets in the next few quarters. The benefits of lower diesel prices are also expected to beef up margins.
