Concrete

Base effect hides monthly decline

Published

5 years ago

October 19, 2021

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Steel and cement sector witnessed a growth of 59.3 per cent and 7.9 per cent (YoY) respectively, which reflects the capex push provided by the Central and State governments. The decline in case of cement and steel production is mainly due to impact of the record surge in Covid-19 cases in May 2021 and the associated lockdowns on construction activity.

The Eight core sector should be read with caution again as the favourable base effect is again at play for the third consecutive month. In May 2021, core sector output rose by 16.8 per cent as against a contraction of 21.4 per cent in May 2020. On a month on month level comparison, there has been a marginal decline of 3.7 per cent which reflects the impact of the second wave of the Covid-19 pandemic and the associated lockdowns on business activities. One should note that May has been characterised by lockdowns of varied nature in both FY21 and FY22. The localised lockdowns during May??1 did have a bearing on output of the 8-core sector to some extent while the double-digit growth can be chiefly ascribed to the low growth number in May??020. There has been an upward revision in the core sector growth data for April??1 to 60.9 per cent (previous estimate: 56 per cent).

The double-digit Y-O-Y growth has been primarily driven strong growth registered in steel, natural gas and refinery products. Month-on-month improvement has been registered in case of fertilisers (ahead of kharif season), natural gas and coal production. The monthly index for May??1 is still 6.1 per cent lower than the pre-pandemic index of February??0 and 8.2 per cent lower than May??019 (the year prior to the pandemic). So far in FY22, the core sector output has witnessed a growth of 35.8 per cent compared with a de-growth of 29.4 per cent in the corresponding month last year but this purely a baseeffect phenomenon. There could be support from government capex as the fiscal numbers for this period show higher outlay on roads.

Key highlights

Coal production was higher by 6.9 per cent in May 2021 as against -14.1 per cent in May 2021. Despite the 2nd wave of the COVID19 pandemic disrupting business activities during the month, there has been a month-on-month improvement of 3.1 per cent in coal production on the back of revival in demand from the power sector.

Crude oil production fell by 6.3 per cent in May 2021, registering the 42nd consecutive monthly decline. The decline in production can be ascribed to adverse climatic conditions created by cyclone Tauktae, which hit the Indian west coast coupled with less than planned contribution from workover wells, drilling wells and old wells. The overall production has also been lower owing to lower consumer demand, infectivity issues in few wells, workovers and water knockouts.

Natural gas production rose by 20.1 per cent in May??021 compared with contraction of 16.7 per cent in May??020 mainly due to higher output from the PSC fields. However, production in government fields were low due to reduced gas production in Western Offshore due to cyclone Taukate, delay in commencement of gas production and less offtake by consumers due to Covid-19 issues. Natural gas production by Pvt/JVs companies in the PSC (production sharing contracts) regime has almost tripled on a YoY basis. This is due to increased contributions from D-34 field of KG DWN 98/3 and wells from satellite cluster.

Refinery production rose by 15.3 per cent in May??1 as against a de-growth of 21.3 per cent in May??020. There has however been a month-on-month decline of 4.6 per cent reflective of lower consumer demand amidst the localised lockdowns during the 2nd wave of the Covid-19 pandemic. Products that witnessed a rise in production were high speed diesel, petrol, liquefied petroleum gas, aviation turbine fuel and petcoke, while fuel oil and kerosene saw a fall in output during this month.

Fertiliser production declined to a 14-month low of 9.6 per cent in May 2021 compared with a high base of 7.5 per cent in May 2020. The m-o-m growth of 16.1 per cent can be ascribed fertilizer manufacturing companies increasing their production in May over April in anticipation of good demand ahead of the kharif sowing season. Along with this, the Centre increased the subsidy on fertilizers in mid-May after fertilizer producers announced their plans of increasing prices due to a surge in international feedstock prices. This hike in subsidies assuaged manufacturers??worries around a fall in demand from farmers. This is likely to have supported production too.

Steel and cement registered a growth of 59.3 per cent and 7.9 per cent (YoY) respectively which does reflect the capex push provided by the governments at both Centre and State level along with a low base effect. The m-o-m decline in case of cement and steel production highlights the impact of the record surge in Covid-19 cases in May 2021 and the associated lockdowns on construction activity. Labour shortages due to reverse migration also had a bearing on construction activities during May??021.

Electricity generation rose by 7.3 per cent in May 2021 as against a low base of 14.8 per cent in May 2020. However, there has been a month-on-month decline of 7.1 per cent as states imposed lockdowns to rein in the devastating effect of the second wave of the Covid-19 pandemic. The higher usage of electricity in residential locations during the summer season limited the monthly moderation to some extent.

CARE Ratings??View

There has been a dip in the core sector index for May??021 compared with the previous month which reflects the impact of the localised lockdowns on business activity. However, as economic activities, especially in the industrial segment were not significantly affected in June 2021, output of the core sector will witness an improvement. There has been a strong push for capex from the Government which will drive steel and cement while the advent of the kharif season will drive fertilizer production. The impact of the base-effect will continue in the next few months but will fade away subsequently. The IIP for the month of May??021 could range between 20-30 per cent though one should not read much into it.

Courtesy: CARE Ratings

ABOUT THE AUTHOR:

The article is authored by Sushant Hede, Associate Economist. He can be contacted on: Email: sushant.hede@careratings.com | Tel: 91-22-6837 4348

Disclaimer: This report is prepared by CARE Ratings Limited. CARE Ratings has taken utmost care to ensure accuracy and objectivity while developing this report based on information available in public domain. However, neither the accuracy nor completeness of information contained in this report is guaranteed. CARE Ratings is not responsible for any errors or omissions in analysis / inferences / views or for results obtained from the use of information contained in this report and especially states that CARE Ratings has no financial liability whatsoever to the user of this report.

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Cement Makers’ Margins To Fall Rs 50-75 Per Tonne Amid West Asia Conflict

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The rating agency said steady domestic demand and strong balance sheets should keep credit profiles stable despite the moderation in margins. Green energy currently accounts for 35-40 per cent of the sector’s total electricity consumption and is expected to partly cushion higher energy costs. Operating cash flows are likely to remain resilient, supported by projected 6-7 per cent growth in cement demand this fiscal.

Crisil highlighted that demand growth will be driven primarily by infrastructure spending, which meets about one-third of sector consumption, and by a nearly 18 per cent higher budgetary allocation for core ministries that should support project execution. Weaker rural housing demand amid pressure on agricultural incomes from a possible below-average monsoon may be offset by improved urban housing demand supported by favourable home-loan rates and a strong pipeline of Pradhan Mantri Awas Yojana-Urban projects. Ongoing capacity additions will keep capital expenditure elevated and may lift net debt to EBITDA to between 1.2 and 1.4 times from around 1.0 time last fiscal, though ratios are expected to remain healthy.

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UltraTech Board Approves Rs 50 bn Fundraise Via NCDs

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UltraTech Cement’s board of directors has approved raising Rs 5,000 crore (Rs 50 bn) through non?convertible debentures issued in rupees.

The finance committee cleared a proposal to issue up to 500,000 fully paid, unsecured, listed, rated, redeemable, rupee?denominated, non?convertible, non?cumulative debentures of Rs 1 lakh each (Rs 0.1 mn each), aggregating to the Rs 5,000 crore programme.

As of June 2026 the firm reported net debt of Rs 15,875 crore (Rs 158.75 bn) and said its capacity expansion projects under execution are backed by capital expenditure of about Rs 17,000 crore (Rs 170 bn) over the next two to two?and?a?half years.

UltraTech spent Rs 9,500 crore (Rs 95 bn) on capital expenditure in financial year 2026 and in April the group crossed 200.1 mn tonnes per annum of domestic grey cement capacity and 205.5 mn tonnes per annum of global capacity.

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In the first quarter of financial year 2026?27 UltraTech’s net profit attributable to owners rose 16.8 per cent year?on?year to Rs 2,599.3 crore (Rs 25.993 bn) and revenue from operations increased 15.9 per cent to Rs 24,648.20 crore (Rs 246.482 bn). The board approval is expected to complement internal cash flows as the company advances its expansion programme.

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Andhra Pradesh Education and IT Minister Nara Lokesh on Wednesday laid the foundation stone for the Line-2 expansion of Dalmia Bharat Cement at Chinnakomerla village in Mylavaram Mandal in Kadapa district. The project carries an investment of Rs 31 billion (bn) and is slated for completion by the third quarter of the financial year 2028. The expansion is intended to boost industrial growth and employment generation across the Rayalaseema region.

Once commissioned, the Kadapa facility will become Dalmia Bharat’s largest integrated cement manufacturing ecosystem in southern India, creating over 1,000 direct and indirect jobs and opening new business avenues for regional micro, small and medium enterprises and transport operators. Lokesh said the expansion signalled growing corporate confidence in the state and reflected the practical ease of doing business that secured repeat investment.

He placed the project within the government’s wider economic targets and recalled the Yuvagalam padayatra commitment to generate two million (mn) jobs within five years, noting that the state would cultivate talent while industry created opportunities. Lokesh highlighted Andhra Pradesh’s competitive pursuit of major manufacturing accounts, mentioning past successes and a personal initiative to engage global investors when persuading them to anchor expansion in the state.

The plant will leverage Kadapa’s abundant limestone reserves to scale production and sustainability. Clinker capacity is planned to rise from two point five million tonnes per annum (mn tpa) to six point one mn tpa, while overall cement output will increase from three point six mn tpa to nine point six mn tpa. The unit is designed to operate on over eighty per cent renewable energy and deploy waste heat recovery, zero liquid discharge, water recycling and advanced AI systems to optimise efficiency. Industries Minister TG Bharat, BC Welfare Minister S. Savitha and Jammalamadugu MLA C. Adinarayana Reddy attended the ceremony.