CRISIL expects cement demand in India to contract by 10-15 per cent in FY21 in the base line scenario. However, an extended vulnerability will deepen the damage for the sector to 20-25 per cent, they add.
In the near term, the challenges will also be posed by a rise in working capital as most of the volumes pushed by companies
from the beginning of March are lying with dealers. Binod Modi at Reliance Securities says that companies’ working capital cycle may stretch a bit in Q4FY20 due to non-payment from dealers for unsold inventories.
Realisations, which had remained firm in March, are likely to take a hit too. Though analysts' channel checks suggest that all-India average cement price softened marginally by 0.5 per cent month-on-month to Rs 310-315 per 50-kg bag in March, there was undercutting to the tune of Rs 5-7 per bag being in Tier-II and Tier-III brands. Moving forward, with demand under pressure, cement prices may take a further hit.
The only respite that cement manufacturers may see is on the logistic costs. While soft crude oil prices help, with lower production volumes, transporters are offering more concessions on freight rates which will further help the cost curve, say analysts. Pet coke prices may also remain soft and so may energy costs.
However, with the June quarter that sees peak construction activity likely to remain impacted, all eyes will now be on the second half of FY21.
While the near-term volume growth outlook is muted, as demand recovers in second half of FY21 UltraTech is well positioned to leverage on it with current utilisation (FY20e) at 74 per cent and pan India presence, says Macquarie research.
JK Cement, too, remains well placed having good exposure to South. Shree Cement, the cost efficient player that has corrected by almost 39 per cent from February highs, too, remains a good bet, say analysts.