Cement demand could not be sustained due to Covid-19 pandemic: K M Birla

Birla informed shareholders that cement demand for most of FY2020 was sluggish, with improvement expected December onwards

UltraTech Cement Chairman Kumar Mangalam Birla said on Wednesday the improved demand situation since December 2019 could not be sustained due to the outbreak of the Covid-19 pandemic. He was addressing shareholders at the company’s first virtual annual general meeting. 

“While 2020-21 (FY21) will be a challenging year, I remain confident that the economy will revert to the 

6-8-per cent growth trajectory in the next financial year,” he said and reiterated the company had a strong balance sheet, robust cash flows, and comfortable gearing levels. 

Birla informed shareholders that cement demand for the most part of 2019-20 (FY20) was sluggish, with an improvement expected December onwards. “The cement industry, after witnessing a healthy demand growth of 13 per cent in 2018-19, exhibited a decline in growth in this financial year. Cement demand was sluggish during the first half of FY20, exacerbated by the general economic slowdown.” 

He added that the second half of the financial year witnessed extended monsoon, low capital expenditure (capex) on infrastructure and road activities, along with financial stress in the non-banking financial company and housing sectors.  

“Far beyond business and economic disruptions, unlike other crises, Covid-19 has, after all, left an indelible imprint on our personal lives,” he said in his opening remarks. “The lockdowns necessitated by Covid-19 have caused unprecedented economic shocks globally.”

In his speech, Birla said the Indian economy, like most other economies, is expected to contract during FY21, on account of Covid-19-induced shutdown in April and May.  “The lockdowns had a more severe impact in urban India and on services that thrive on people’s mobility. The economic disruption to the rural economy appears to be less severe,” he added. 

Speaking on the company’s June quarter performance, Birla said UltraTech’s focus on conserving cash continues unabated. 

“The overheads control programme initiated by the management cut fixed costs by 21 per cent year-on-year,” he said. “Prudent working capital management and control on cash flows resulted in a reduction of net debt by Rs 2,209 crore during first quarter of FY21,” he added. 

On planned capex, Birla said UltraTech would spend Rs 1,500 crore for works, including installation of 66 megawatt of waste heat recovery systems, 1.2-million tonne per annum (mtpa) brownfield cement capacity addition in West Bengal and Bihar, pending work for Phase 2 of the Bara grinding unit in Uttar Pradesh, coal block development in Madhya Pradesh, new ready-mix concrete plants and other plant upkeep capex.