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Cement demand to remain strong in FY22 on rural, infra requirement: Icra

Capacity additions to keep utilisation levels under check in FY22, FY23

Topics
cement industry | ICRA | Indian Economy

Aditi Divekar  |  Mumbai 

cement

Rating agency expects the all-India cement production in FY22 at 332 million tonne, up 12 per cent from last year supported by pent-up demand, rural housing requirement and pickup in infrastructure activity.

“The rural housing demand is expected to be supported by the robust kharif harvest and continued healthy procurement, supporting farm income,” the report quoted Anupama Reddy, assistant vice president and sector head of Corporate Ratings, Icra, as saying.

In FY2023, the production is expected to grow 8 percent to around 358 million tonne.

“The significant pick up in the infrastructure activity backed by the National Infrastructure Pipeline (NIP) is likely to see healthy traction in terms of new project awards and execution in the medium term, which is expected to boost cement demand,” Reddy added.

Domestic cement production during Apr-Aug FY22 stood at 142 million tonne, up 44 percent on year-on-year basis and up 2 per cent compared to pre-covid levels (5M FY2020), said in its report today.

With regard to profitability of cement companies, while the input costs remain elevated in Q1FY22, Icra’s sample of 12 listed cement companies, reported the highest ever OPBIDTA per tonne in the quarter under review at Rs 1,372 per tonne driven by an increase in net sales realisation and cost optimisation measures undertaken.

The operating margin of the sample is higher by 30 basis points year-on-year and 170 basis points quarter-on-quarter at 25.8 percent in Q1 FY22.

Overall in April-September FY22, cement prices were higher by 4 per cent year-on-year. This is primarily driven by the increase in input costs–power, fuel and freight expenses over the last few months.

Coal prices have risen 103 per cent, pet coke prices by 87 per cent and diesel prices by 20 per cent on year-on-year basis in April-September FY22. While the revenues of Icra’s sample are expected to increase by 13 per cent in FY22 largely supported by volumetric growth, the elevated input costs are likely to exert pressure on operating margins resulting in a margin contraction by around 200-230 basis points.

“Capacity additions are expected to increase to around 18-20 million tonne per annum in FY22 and to 27-30 million tonne in FY23 from around 15 MTPA in FY2021,” said Reddy.

With the expected increase in demand in FY22 and FY23, the utilisation is likely to improve to around 62-64 per cent from 57 percent in FY21, however, the same remains at moderate levels on an expanded base.

On the funding of capex, the reliance on debt for new capacity additions in FY22 is likely to be lower owing to the healthy cash generation and strong liquidity of the cement The debt coverage metrics are expected to remain strong in FY22, said

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First Published: Wed, October 13 2021. 15:30 IST
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