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Government infra spend to increase cement demand, says Crisil

Press Trust of India  |  Mumbai 

The cement sector may witness incremental demand to outpace incremental supply in the next three fiscals owing to the government's infrastructure spend, rating agency said today.

While incremental demand is seen doubling to 48 million tonne (MT) compared with the past three fiscals, incremental supply is seen moderating by a fifth to 31 MT from 39 MT. Demand is being supported by the government's focus on affordable housing and infrastructure, especially spending on roads, and urban development, it said in a report.

"We foresee a sharp recovery in demand this fiscal after dealt a major blow, leading to a 1.2 per cent de-growth last fiscal.

"The industry should be able to rack up 5-6 per cent compound annual growth rate between this fiscal and 2020, or nearly twice as fast as between fiscals 2015 and 2017, Ratings Senior Director Sachin Gupta said.

Last fiscal was a landmark year that saw the sector signing Rs 32,000 crore of acquisitions, which was termed as the biggest consolidation the segment has seen in a year, and was financed through a Rs 25,000 crore debt, the report said.

Once these transactions are completed, the acquirers will increase their share of total installed capacity significantly to 37 per cent from 28 per cent now. But their share of industry debt will rise from 17 per cent now to 45 per cent, the rating outfit said.

Synergies from the flurry of acquisitions last fiscal and steady realisations will help improve cash accruals despite an increase in power and fuel costs. A large part of the acquired capacities are in the eastern and central regions, where demand growth is the highest, and that should augur well for the acquirers, the report said.

As a result, their debt protection metrics will weaken this fiscal, with net debt to operating profit ratio rising to 2.9 times by the end of this fiscal from 1.5 times in the last. But it would swiftly improve to 1.6 times by fiscal 2020, it said.

"We expect the credit profiles of acquirers it (Crisil) rates to be resilient despite the surge in debt. Volume-led growth in operating profit will swiftly correct debt protection metrics from the levels expected this fiscal," Ratings director Nitesh Jain said.

However, slower-than-expected demand from the infrastructure sector - as it is linked to spending - could be a spoiler. The implementation of the Real Estate (Regulation and Development) Act could also have a short-term impact on volume growth, the rating firm added.

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Mon, June 19 2017. 19:29 IST