UltraTech Cement expects subdued performance as economy slows down

Leading cement maker UltraTech Cement expects a "subdued performance" in the wake of weak real estate and overall slowdown in the economy coupled with the impact of the coronavirus pandemic, according the company's annual report for 2019-20.

The nationwide lockdown, amid the coronavirus outbreak, will have a significant near-term impact on the cement industry, however, the Aditya Birla Group firm is "confident of its ability to weather the storm" and come out stronger given its healthy credit profile.

Besides, the company also expects "significant near-term impact" on the cement industry on account of the nationwide lockdown, amid the coronavirus outbreak, which disrupted the production, market and supply chain.

"Increase in government spends on health and public welfare; weak real estate and an overall slowdown in the economy is expected to reflect in a subdued performance of your company in the current financial year.

Nonetheless, given your company's healthy credit profile, it is confident of its ability to weather the storm and come out stronger, said UltraTech Cement in the Directors' Report and Management Discussion and Analysis'.

According to the company - with anticipated pick-up in private investment, financial sector reforms, resolution of stressed assets under IBC and positive interventions by the government, the outlook for fiscal 2020-21 was seen to remain largely positive.

However, the world was hit by the COVID-19 pandemic and India was no exception, where the government had imposed lockdown from March 25 to curb the spread of the virus. The industry was allowed to operate only from April 20.

This had brought cement dispatches of UltratTech to a complete halt and as a result, volumes were negligible during the last week of March 2020 and the whole of April 2020.

"The nationwide lockdown, amid the coronavirus outbreak, will have a significant near-term impact on the cement industry. While the sector witnessed robust demand prior to the lockdown, the event led to the closure of all major cement plants, including those of your Company, and cessation of construction activities at the sites," it said.

While talking about the cement industry, UltraTech said after witnessing a healthy demand growth of around 13 per cent in FY19, it exhibited a decline in growth in FY20 as demand was sluggish in the first half.

The demand for construction material is fundamentally driven by the economic growth in the country and an economic slowdown and subdued infrastructural development might lead to a slowdown in construction projects, leading to a reduction in cement consumption in the country, it said.

According to UltraTech, growth in construction activity in the country has been slow over the last few years, impacting cement demand.

"In a scenario where incremental cement demand exceeds incremental capacity addition, the government's push on infrastructure and housing will aid the growth in cement consumption and reduce the overcapacity gap," it said.

UltraTech's consolidated net turnover in FY2020 was at Rs 41,476 crore, in which the domestic market had contributed Rs 39,588 crore and Rs 1,888 crore from exports.

After acquisition of the cement business of Century Textiles and Industries Ltd, UltraTech has a consolidated capacity of 114.8 million tons per annum (MTPA) and is the only company outside of China to have 100 MTPA plus capacity in a single country.

Its cement production in FY2020 was at 76.57 million tonnes, lower by 2 per cent as compared to 77.87 million tonnes in the previous year.

This is mainly attributable to the de-growth in the cement industry, witnessed after 20 years. Consequently, capacity utilisation was also lower at 69 per cent as compared to 76 per cent last year, it said.