Cement demand growth expected to be around 3.5-4% in FY18, says Icra

Rating agency ICRA has downgraded its forecast for cement demand growth to 3.5-4 per cent for 2017-18 on account of delay in revival in the first half of the fiscal.

According to the agency, the cement demand is expected to be muted in the second quarter of FY2017-18 due to issues such as monsoons and the GST implementation.

However, ICRA expects the cement demand to rebound from the October-December quarter onwards.

"Cement demand growth is expected to be around 3.5-4 per cent during FY 2018, a downward revision as against its earlier estimate of 5 per cent, owing to the delay in the revival of cement demand during H1 FY2018," said ICRA.

Demand in the first quarter was "adversely impacted" led by factors as shortage of sand in a few southern and northern states, implementation of the Real Estate Regulatory Authority (RERA) and slowdown in the construction activity in West.

"Although the cement demand is expected to be muted in Q2 FY2018 on account of the monsoons and the GST implementation issues, we expect the demand to rebound from Q3 FY2018," ICRA Ratings Senior VP and Group Head Sabyasachi Majumdar said.

He further said: "The demand growth is likely to be driven by a pick-up in the housing segment - primarily affordable and rural housing, and infrastructure segment - mostly road and irrigation projects."

Besides, higher power and fuel due to increase in coal and pet coke prices and freight costs the increase in cement prices remain critical from the profitability perspective.

Moreover, "Lumpy capacity additions in the recent past have led to an increase in debt levels and some deterioration in credit metrics, although they still remain at comfortable levels for most of the larger players," Majumdar added.

As for financial performance, most cement companies reported an increase in the revenues in the first quarter of FY 2017-18 on a Y-o-Y basis.

"This was driven by an increase in the sales volumes and net sales realisations. While the profitability margins of most cement companies have been under pressure on account of rising costs during the period, increase in the realisations have supported the margins to a large extent," the report said.