Cement Sector's Capacity Utilisation To Drop to 65%: Fitch Ratings Business
Credit rating agency Fitch Ratings said it believes a sustained gross domestic product (GDP) growth, the government's thrust on infrastructure and affordable housing, and a revival in corporate capex (capital expenditure), will underpin growth of the cement sector.
 
The rating agency expects India's cement demand to rise by mid-to-high single digits over the medium term after an estimated mid-teen rebound in the financial year ended March 2022 (FY21-22).
 
Nonetheless, industrywide utilisation will drop towards 65% from the close to 70% we estimated in FY21-22 as faster new capacity additions will outpace demand growth.
 
This will temper cement producers' pricing power, notwithstanding the expectation that the industry will consolidate further.
 
Fitch Ratings said Adani group's potentially more aggressive approach to capacity expansion after it takes over Holcim Ltd's Indian business will heighten the competition in the industry.
 
The price hikes by cement producers will not fully counter the spike in energy prices since the start of the Russia-Ukraine war.
 
Cement producers' per tonne margin in FY22-23 will stay markedly below the pandemic-hit FY20-21 level when low energy prices boosted profit, despite lower demand.
 
Leading Indian cement companies' reduced financial leverage since FY19-20 will support their financial flexibility, despite their lower profitability and plans for higher expansion capex.
 
The impact of inflationary pressure on cement demand from the Russia-Ukraine war has been limited so far, but downside risks to our estimates will rise if macroeconomic conditions deteriorate significantly, Fitch Ratings said.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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