Utilization of the cement sector will fall to 65%

Utilization of the cement sector will fall to 65%

Credit rating agency Fitch Ratings said it believes a sustained gross domestic product (GDP) development, the government’s thrust on infrastructure and reasonable housing, and a revival in corporate capex, will underpin development of the cement sector. The rating agency expects India’s cement demand to ascend by mid-to-high single digits over the medium term after an expected mid-teen rebound in the financial year ended March 2022 (FY22).

This will temper cement producers’ pricing power, notwithstanding our expectation the industry will consolidate further.

Nonetheless, industrywide utilisation will drop towards 65 per cent from the close to 70 per cent we estimated in FY22 as faster new capacity additions will outpace demand growth.

Fitch Ratings said Adani Group’s potentially more aggressive approach to capacity expansion after it takes over Holcim Ltd’s Indian business will heighten the competition in the industry.

Cement producers’ per tonne margin in FY23 will stay markedly below the pandemic-hit FY21 level when low energy prices boosted profit despite lower demand.

The price hikes by cement producers will not fully counter the spike in energy prices since the start of the Russia-Ukraine war.

Leading Indian cement companies’ reduced financial leverage since FY20 will support their financial flexibility despite their lower profitability and plans for higher expansion capex.

The impact of inflationary pressure on cement demand from the Russia-Ukraine war has been limited so far, but downside risks to our estimates will rise if macroeconomic conditions deteriorate significantly, Fitch Ratings said.

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