Fluctuation in prices and pressure on margins are likely to hit the sector, as cement companies will attempt to gain market share after normalcy returns.
Most cement stocks have suffered significant losses in the wake of the novel coronavirus pandemic, and brokerages and industry experts are expecting rough weather ahead for them owing to disruption in economic activities.
Brokerages have highlighted that the demand for cement in FY21 is likely to be impacted by the lockdown announcement and the expectations of lower infrastructure spending by the central and state governments as their finances may be under strain due to relief packages to support the loss of income caused by the lockdown.
"We factor in the industry’s average capacity utilization of a mere 46 percent in Q1FY21 and 56 percent in Q2FY21. We factor in a volume decline of 34 percent YoY in Q1FY21 and assume a volume decline of 10 percent YoY in Q2 and Q3FY21. However, Q4FY21 may see a volume growth of 5 percent YoY (supported by a lower base of Q4FY20)," said Emkay Global Financial Services in a report.
Emkay expects 2 percent and 12.4 percent YoY volume decline for the industry in FY20E and FY21E, respectively. However, the brokerage expects the industry volumes to recover sharply in FY22E, supported by a low base of Q1FY22E and factors in a 13 percent YoY volume growth for the year.