Domestic cement demand is expected to be highest in the decade, estimated to surpass 340 million tonne in FY2022, driven by sustained rural housing demand and significant pick-up in infrastructure activity.
On the supply side, the capacity addition is also expected to increase by 22-25 million tonne in FY2022.
As per an Icra note, while the cement prices are expected to largely sustain at the recently increased levels supported by the improved demand, the higher input costs are likely to exert pressure on operating margins during the fiscal.
Though this is likely to result in some moderation in debt coverage metrics, they are likely to remain at healthy levels.
??he sentiment in the rural areas is expected to be positive on the back of favourable kharif harvest, rise in rabi sowing, reasonably healthy reservoir levels in many regions during January ??February 2021 compared to average storage of last 10 years (with an early rise in temperatures, the upcoming monsoon will be crucial), favourable trends in procurement combined with a modest MSP (minimum support price) hike. This is expected to generate a healthy increase in the cash flows for the farm sector,??Rajeshwar Burla, vice president and co-group head at Icra was quoted as saying.
Alongside, continued focus on agriculture and rural development in the Union Budget of 2021-2022 is expected to boost rural housing demand. Meanwhile, the Union Budget has also increased the capital outlay for infrastructure sector.
The gross budgetary support towards capital expenditure has been increased significantly to Rs 5.54 lakh crore in 2021-22 up 34 percent from 2020-21 budget expectation, and 26 percent from 2020-21 revised estimate with higher allocation towards the infrastructure sector (roads, railways, metros, ports etc).
The pick-up in the construction activity in infrastructure segment will also support the cement demand, said Icra. On the supply side, capacity additions are expected to be in the range of 15-17 million tonne in FY2021 as against the earlier estimates of around 20 million tonne owing to the Covid-19 pandemic when demand is adversely impacted, and the companies preserved liquidity.
The capex is likely to get back to around 22-25 million tonne in FY2022 and FY2023. The addition in eastern India is expected to lead the expansion and is expected to add around 20 million tonne followed by the central region at around 13 million tonne during FY2022-FY2023.