The economy of the country has undergone a churning after demonetisation and the cement industry is no exception to the upheaval. Cement makers, analysts and dealers share their views and strategies on how to combat the aftermath of this game-changing move.
Ambuja kicks off ‘Go Cashless’
Ambuja Cements has embarked on a campaign, ‘Go Cashless’ from December 7th, 2016, for its business partners, to encourage digital options. The company will provide swipe machines and other cashless options with support from ICICI Bank. The bank is providing an exclusive helpline and easy account opening options.
Ambuja claims to be the first cement company to come out with such an option after demone?tisation. Construction and related communities in semi-urban and rural areas deal strictly in cash and have been facing difficulties after November 8th, 2016.
‘Our company is committed to improving the quality of life of all our stakeholders,’ said the company’s Managing Director and CEO, Ajay Kapur. ‘The ‘Go Cashless’ campaign is yet another endeavour empowering the construction community through knowledge transfer. We are successfully seeding innovative thinking at the grass-roots and bringing information and technology to the forefront of all our esteemed business partners.’
Ambuja Cement has, in 20 days, sent out more than over 10,00,000 text messages; 200,000 WhatsApp messages that included a series of short animated clips, and kick-started an educational radio campaign across 17 different stations in New Delhi, Himachal Pradesh, Punjab, Rajasthan, Gujarat, Maharashtra and West Bengal. Following the launch in early December, the first leg of the campaign witnessed a series of teaser text messages on problems faced by the cement community post demonetisation. The second leg launched on 17th December included broadcast of educational messages.
The minute-long audio clips give updates on different modes of cashless transactions via cheques, cards (debit/ credit cards) and mobile payments (UPI app) in a simple manner.
These initiatives have helped reach out to over 42,000 partners (retailers, contractors and masons) across India and over 45,000 via radio. Meanwhile, all the company’s dealers are already conducting cashless transactions.
In the near future, a few more similar initiatives will be launched by the company to further empower the construction community across the country.
Source: Business Standard and Cemnet.com
Demand revival will take a year
JM Financial conducted a survey across various markets in the country which have been impacted following demonetisation in November 2016.
The report reveals that cement demand is unlikely to recover for another year. The manufacturers are also facing the heat of increase in price of diesel and pet coke. The eastern region saw a 70 per cent demand decline in November, but demand recovered in the subsequent period to about 70 per cent of the usual levels. The northern and western regions witnessed a 25-50 per cent fall in sales. Some southern regions experienced a decline in the first week of December. It is observed that prices have dropped Rs 10-25 per bag in the northern and western regions. While investors expect things to normalise in three to six months, the impact is enough to postpone the recovery in cement demand by another year or so, according to analysts.
‘We expect demonetisation to have a material impact on the second half of FY17 earnings of cement companies,’ said Abhishek Anand, an analyst at JM Financial.
‘We expect a decline of 5-10 per cent in volume for second half of FY17 and reduce our growth expectation for FY18, as we factor in delayed recovery.’
Stocks of cement companies have fallen 10-30 per cent since November 8, 2016. (Source: ET, JM Financial Services)
Bina Engineer, Director – Finance, Sanghi Industries, spoke to ET Now about the impact of demonetisation on cement demand.
Engineer says that the dispatches have come off by about 10 per cent in the domestic market, particularly in the segment which belongs to the rural individual house builder area. The segment suffered a major setback because the resources and working capital have been blocked suddenly.
In the institutional segment, the volume has been either maintained or it has even improved slightly. So between the two sectors which are major sectors, the house demand has clearly come off and the infra demand has been maintained or slightly improved.
She expects that the situation should improve in about at least two months going forward because most of the demonetisation impact is expected to wear off by December. Cement is a long-term usage commodity where the demand does not disappear; it is not an impulsive demand.
It is expected that housing which currently forms about say 60-65 per cent of the overall demand is going to come down to about 55 over next the three to four years and infrastructure which is about 20 per cent of total demand, is going to go up to about 30 per cent of demand.
On the price front, Engineer said pet coke prices have shot up by almost 50 per cent to 60 per cent and that had clearly had an impact across the industry. This year cement prices have also remained very flat or on the lower side compared to the previous period. Therefore, it has had clear impact on the margin.
She feels that there would be 30-40 per cent reduction in the margin levels across the industry. She further expressed that Q3 was a washout, something similar to the monsoon quarter where demand and prices are quite weak. Engineer also pointed out that fuel and power cost had also gone up for everybody. In Q4, she expects things to pick up. On FY17 as a whole, she expects things to remain stagnant as compared to the previous year. She hopes there will be a pickup from April onwards.
Sanjay Ladiwala, Chairman, Cement Stockists & Dealers Association of Bombay, feels that the retail segment has been severely hurt. There is no uptake from individual house builders and the situation will continue as long as the cash crunch lasts. It is difficult to predict till when it will continue.
However, a double-digit growth is not foreseen for the next couple of months, and then comes the monsoon. Therefore the real growth will come in October 2017. However, Ladiwala feels that the silver lining is that the infrastructure sector is growing pretty well. There is de-growth in the real estate sector, but it consumes only about 20 percent of the total consumption. Infra is growing quite fast, but whether it grows fast enough to take up the slack created by real estate is anybody’s guess, says Ladiwala. He strongly feels that double digit growth has been postponed at least for the next couple of years.
Source: Moneycontrol.com