Capacity utilisation to fall to 65% in cement industry: Fitch Ratings
Fitch Ratings told the media that it believes a sustained gross domestic product (GDP) growth, the government’s thrust on infrastructure and affordable housing, and revival of corporate capex will underpin the growth in the cement industry.
It expects India’s cement demand to increase by mid-to-high single digits over the medium term after an estimated mid-teen rebound in FY22.The cement industry’s utilisation will drop to 65% from 70%, estimated in FY22, as faster new capacity additions will outpace demand growth.
It will temper cement producers’ pricing power, and the industry will consolidate further.
Fitch Ratings said Adani Group’s aggressive approach to cement capacity expansion after it acquired Holcim Indian business. It will result in increasing the competition in the industry.
The increased prices by cement producers will not fully counter the energy prices due to the Russia-Ukraine war.
It said that the cement producers’ per tonne margin in FY23 will stay much below the pandemic level in FY21 when low energy prices increased profit despite having low demand.
Major cement industries reduced financial leverage since FY20 to support financial flexibility despite lower profitability and plans for higher capital expenditure (capex) expansion.
Fitch Ratings added that the impact of inflationary pressure on cement demand from the Russia-Ukraine war had been limited, but downside risks might increase if macroeconomic conditions deteriorate significantly.
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