Cement demand growth is expected to cut this tax in half: Crisil
New Delhi, September 4 () Cement demand growth is expected to be halved to around 5 to 5.5 percent this fiscal year, affected by weak government spending in the first half and the liquidity crisis facing the real estate market, according to a Crisil Research report.
However, the profit margin for the sector would be at a maximum of six years due to the recent price increases made by the industry in the quarter from April to June and the lower energy and fuel costs, according to the report.
Crisil expects cement demand growth to witness a mid-cycle slowdown of 5 to 5.5 percent year-on-year this fiscal year, a sharp 12 percent drop in fiscal year 2019, Crisil Research said.
According to the report, demand growth will support the worst part of weak public spending in the first half, which contributes to almost 35-40 percent of cement demand and the liquidity crisis affecting the real estate market that consumes 5-8 for cement ...
Other external factors such as the shortage of labor related to the elections, the problems with the availability of sand and water in the key states further affected the demand for cement in the first quarter of the current fiscal year.
Crisil Research senior director Prasad Koparkar said he expects a better second half (H2) for the industry this fiscal year, led by a gradual rebound in demand.
Growth in H2 will be better at 8-10 percent in a weak H1 led by a gradual recovery in the release of government funds for institutional projects after a higher dividend payment and a single reserve transfer from RBI to the government, He said.
On the other hand, delayed but a good monsoon this season will bode well for the demand for rural housing.
While the western and central regions will register a healthy growth of 5-6 percent in the current fiscal year, the south and east will be weak with 2-4 percent at the high base last year and a limited expenditure of the state governments said.
Around 22 lakh housing units are in different stages of construction under Pradhan Mantri Awas Yojana (PMAY) PMAY-Urban and the government has set a target of 60 lakh units under PMAY-Gramin for fiscal year 2020, he said.
This will only generate 80-85 MT of cement demand over the next year and a half. This is greater than 15 lakh PMAY-Urban and 22 lakh PMAY-Gramin that were built in fiscal year 2019, the report said. .
In addition, he said that cement prices, which have witnessed northward trends, are expected to soften in the coming months, as between 14 and 15 MT of additional capacity will be launched in the second half and the increase of the acquired capabilities continues. Despite this, for fiscal year 2020 in general, CRISIL Research expects prices to rise 6-7 percent year-on-year, mainly led by a robust Q1, he added. KRH RVK