New Delhi: Cement makers in the country are expected to register healthy operating profitability of 20 percent next financial year, according to a CRISIL.
The healthy operating profitability will be because of a number of factors like higher demand driven by the infrastructure and affordable housing, softer input prices and stable realizations.
In the current fiscal, the operating profitability is likely to be 7-year high 21 percent. This means 350-400 basis points (bps) higher as compared to year ago.
“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,” said Hetal Gandhi, Director, CRISIL Research.
The prices of cement are likely to be stable in the next financial in spite of volatility seen in the current fiscal.
The higher profitability in the current financial year has been driven by five percent growth in cement prices and cooler input prices (lower petcoke and coal prices resulted in a 6-7% decline in power and fuel costs.).
CRISIL said that large cement makers are more flexible to demand slowdown as their volume growth is likely to be at 2 percent in the current financial year. Hence, the credit profiles of large companies have witnessed an improvement in the current financial year over the past few years in spite of supply-side challenges, cost pressures and higher M&A activity because of good liquidity and sound balance sheets.
“The credit profiles of cement makers next fiscal should continue to mend. Net debt/EBITDA is set to improve to 1.7 times this fiscal from 2 times in fiscal 2019, and further to 1.6 times next fiscal driven by healthy operating profitability, moderate capex and strengthening balance sheets,” said Nitesh Jain, Director, CRISIL Ratings.
The cement industry’s annual capex is expected to be at Rs 9,000-11,000 crore in fiscal 2020-2021.