Cement Demand Growth To Halve, Profit Margin To Hit 6-Year High In FY20: CRISIL

New Delhi: The growth in cement demand is likely to be just 5-5.5 percent this fiscal, sharply down from 12 percent in fiscal 2019 but the profit margin is expcedt to be at 6-year high, according to an analysis by rating agency CRISIL.

The demand growth will be impacted because of weak government spending in the first half (H1) of the current financial year. The firs half, typically, accounts for about 35-40 percent of cement demand. There would also be an impact of liquidity crunch which has lent a blow to the real estate industry that consumes 5-8 percent of the cement demand. There were other external factors like election-related labour shortage, lower sand and water availability in many states further accentuated the problem in first quarter of current fiscal.

However, the falling global commodity prices will lead to better profitability of the cement companies. Power and fuel cost, representing 26 percent of the operating cost of cement firms, is expected to go down by 3-5 percent in the current fiscal owing to softening of petcoke and coal prices. The transportation cost is also likely to go down, albeit marginally.

“Growth in the second half will be better at 8-10 percent on a weak H1 led by gradual pick up in government’s fund release for institutional projects post higher dividend pay-out and one-time reserve transfer from RBI to govt. Delayed yet healthy monsoons shall augur well for rural housing demand. While west and central regions shall post healthy growth of 5-6% in current fiscal, south and east shall be weak at 2-4 percent on high base of past year and constrained spending by state government,” says Prasad Koparkar, Senior Director, CRISIL Research.