India’s Cement Demand May Fall By 20-25 Percent This Fiscal


The Cement demand in India is estimated to fall by at least 20-25% If the lockdown due to pandemic Coronavirus extends to May, as per analysts from rating agency Crisil.

The current demand shock might severely affect the capacity addition plans of the industry and may stall projects in medium term.

The worst case scenario is when the extended lockdown way into May end and the construction activity to pick up only in the second half of this fiscal and demand may pick up only from the second half of 2020.

However, if the lockdown and social distancing measures continue only till April end, construction activity may resume in mid-May leading to a fall in demand of only 10-15%.

On a quarterly (QoQ) basis, the CRISIL expects that cement demand will be a complete washout in Q1 continued by a mild recovery through the seasonally weak Q2 will weigh on the sector’s growth. This could be the first-ever demand contraction of this proportion for the cement sector in this fiscal as per the report said.

While in Q3 key infra projects like roads, irrigation and metros will drive growth, it will be only in only in Q4 of FY 21, that a gradual pickup in urban region as migrant worker shortage will come down followed by pick up of industrial projects that got stuck.

It was the Pre-election spending in the year 2018 and 2019 had led to a surge in demand and in turn to an 800 bps improvement in utilisation levels to 70%. This in turn has led to many cement companies to add capacities in their plants. Furthermore, to maintain market share players had even entered newer markets.

Demand Contraction will push the sector’s utilisation levels down further to 56-58%, adding to the pain from weakening seen in fiscal 2020, when incremental supply exceeded demand by 27 million tonnes as per the report.

In the fiscal 2021, analysts expect the Ebitda margin to decrease by 100-125 bps and profitability of the cement companies might come under pressure, however the impact of demand freefall might be limited by lower input prices, the company said. “Crude prices are expected to ease to $35-40 a barrel in 2020, from $64 per barrel in 2019.

A healthy price hike of Rs 25 per bag in fiscal 2020 coupled with lower commodity prices is expected to drive margins to a seven-year high in fiscal 2020.

As per analysts, a full-fledged recovery will take much longer as the government’s capex towards construction might come down, which accounts for 35-40% of cement demand as priority shifts to health and public welfare.

It is possible that the recovery might take longer as there will be weak demand for real-estate and private individual houses and buildings. There will also be a lower spend on Pradhan Mantri Awas Yojana according to the report said.