Covid second wave to result in 25% reduced cement offtake in Q1FY22: ICRA

The second wave of Covid-19 has adversely impacted domestic cement production - the all India production declined 35 percent month-on-month in April 2021 and was lower by 4 percent compared to April 2019, said ICRA in its report.

With most states imposing lockdowns due to the spread of Covid-19 infections to rural regions, (unlike last year wherein mostly urban areas were impacted), the cement off-take in May 2021 is likely to further decline by 35-40 percent on  month-on-month basis.

As per ICRA note, the recovery in the rural regions is expected to be gradual. However, the overall pent-up demand is likely to drive the off-take once lockdowns are relaxed.

“While the sales volumes are expected to be lower by 25 percent quarter-on-quarter in Q1 FY2022; the pent-up demand is expected to push the volumes starting Q2 FY2022,” Anupama Reddy, assistant vice president and sector head, at ICRA was quoted as saying.

The cement companies have undertaken price hikes by an average of 5 percent year-on-year in April 2021. This hike is driven by the increase in the input costs, primarily power and fuel expenses and freight expenses over the last few months. While the cement prices are likely to largely sustain in the near term, the higher input costs, due to the increasing crude oil prices and under absorption of overheads are likely to result in a moderation of EBIDTA/tonne to around Rs 1200 per tonne in Q1 FY2022, lower by 20 percent year-on-year and 6-7 percent quarter-on-quarter.

In terms of sales trend, the Covid-19 disruption adversely impacted the cement demand in FY2021 resulting in the sharpest de-growth over the last decade, said the report.