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Cement companies’ profitability to touch 20% in FY21: CRISIL

The industry’s annual capex is seen at Rs 9,000-11,000 crore in fiscals 2020-2021, in line with the past trend. According to CRISIL, cement prices are expected to remain stable in fiscal 2021 after high volatility seen this fiscal.

Cement companies are expected to report healthy operating profitability of about 20 per cent next fiscal on an expected recovery in demand driven by the infrastructure and affordable housing sectors, stable realisations, and benign input prices, according to CRISIL.

This fiscal, operating profitability is expected to touch a seven-year high of about 21 per cent, which translates to a 350-400 basis points (bps) on-year surge.

Hetal Gandhi, director, CRISIL Research said, “Next fiscal, we anticipate volume growth recovering to 5-6% from 0.5-1% estimated for this fiscal. Demand growth in the infrastructure and affordable housing sectors on a lower base should support volume growth. These two sectors together contribute almost 35-40% of cement demand in India.”

According to CRISIL, cement prices are expected to remain stable in fiscal 2021 after high volatility seen this fiscal. The expectedrecovery in demand and high utilisation of clinker capacities at 78% — because new capacity additions are skewed towards split grinding units – would restrict any steep decline in cement realisations.

“We foresee input prices also remaining range-bound over the medium term, amid stable coal prices and downward
pressure on crude oil and petcoke prices, though there could be short-term volatility,” the company said.

The high profitability this fiscal has been driven by an estimated 5% growth in cement prices and softer input prices (lower petcoke and coal prices resulted in a 6-7% decline in power and fuel costs. This has largely offset adverse movements and fluctuations in the prices of other inputs).

This was despite slower demand growth during the fiscal, owing to lower spending by government departments and overall economic slowdown.

Nitesh Jain, director, CRISIL Ratings said, “The credit profiles of cement makers next fiscal should continue to mend. Net debt/EBITDA is set to improve to about 1.7 times this fiscal from about two times in fiscal 2019, and further to about 1.6 times next fiscal driven by healthy operating profitability, moderate capex and strengthening balance sheets.”

The industry’s annual capex is seen at Rs 9,000-11,000 crore in fiscals 2020-2021, in line with the past trend.

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