With a significant part of the peak construction season getting affected, FY21 is bound to see a decline in demand. After about 0.8 per cent decline during FY20, the demand is likely to fall another 10-12 per cent in FY21, according to rating agency ICRA. Even analysts at JPMorgan expect a 10-12 per cent decline in demand, given the loss of a strong seasonal month (April), a potential shortage of labourers for construction projects (beyond lockdowns), the hit on urban housing, and a shift in government focus from social housing to other priority areas
The only silver lining is softening of the prices of raw material, such as coal and pet coke, besides cement pricing trends. Anupama Reddy at Icra Ratings says: “Despite the plunge in demand, the correction in cement prices would be marginal and limited to around 1-3 per cent across markets, given the industry exhibits pricing discipline”.
Despite declining demand, soft input costs and steady cement prices should lead to just a 200-250-basis point contraction in the profitability in FY21, even adjusting for the rupee depreciation, says Reddy.
Among the listed companies, ACC remains a value pick for JPMorgan, followed by UltraTech, which could be a recovery play. Centrum Broking upgraded its ratings for ACC, JK Cement, and Ambuja Cement, while maintained positive stance on UltraTech and Ramco Cement.