MUMBAI: The growth in demand for cement is likely to remain below 6 per cent due to weak government spending and liquidity crunch in the realty business, according to a research note from CRISIL.
In the report, ratings agency CRISIL says it expects cement demand growth to witness a mid-cycle slowdown to 5-5.5 per cent on-year this fiscal, down sharply from 12 per cent in fiscal 2019.
“Demand growth will bear the brunt of weak government spending in first half which contributes to nearly 35-40 per cent of cement demand and liquidity crunch impacting real estate market which consumes 5-8 per cent of cement demand. Other external factors such as election-related labour shortage, sand and water availability in key states further accentuated the issue in first quarter of current fiscal,” it added.
Growth would be lower compared with even fiscal 2018, when it had printed 9 per cent, however, profit margin during FY2019 is likely to hit a six-year high, given price hikes taken in first quarter (Q1) and lower power and fuel cost, the note added.
Prasad Koparkar, senior director, CRISIL Research says, “Growth in the second half will be better at 8-10 per cent on a weak first half (H1) led by gradual pick-up in government fund release for institutional projects post higher dividend pay-out and one-time reserve transfer from Reserve Bank of India (RBI) to government. Delayed yet healthy monsoons shall augur well for rural housing demand. While west and central regions shall post healthy growth of 5-6 per cent in current fiscal, south and east shall be weak at 2-4 per cent on high base of past year and constrained spending by state government.”