Cement Manufactures Resume Focus On Growth Capex

Cement demand recovery seen in October across India has sustained in November, channel check by brokerages show. South, where demand was the worst hit in April-August 2020, too, is seeing recovery in October-November, led by Andhra and Telangana.

BY Realty Plus
Published - Wednesday, 25 Nov, 2020

Cement Manufactures Resume Focus On Growth Capex

Cement demand recovery seen in October across India has sustained in November, channel check by brokerages show. South, where demand was the worst hit in April-August 2020, too, is seeing recovery in October-November, led by Andhra and Telangana. A key highlight of the September quarter for cement manufacturers was their impressive volume growth. The top 15 companies, which have a 75% volume market share, witnessed a 5% year-on-year demand increase in 2QFY21, added the Kotak report published on 19 November. Sales were largely aided by pent-up rural demand ahead of the festive season. Some pick-up in infrastructure and allied-activities also contributed to volume growth in certain markets. Region-wise, North, Central and East reported better growth in volumes than West and South. Further, the commentary on demand outlook by most cement companies was positive. So, companies have reinstated their capital expenditure plans, which were put on hold due to the pandemic. Given the positive surprise on volume in 2Q and sustained momentum in October 20, managements have upped their volume guidance (flattish growth vs. 10-20% decline expected earlier) for FY21. Growth capex is gradually picking up pace on increasing comfort and visibility on volume growth. While recovery in demand is sentimentally positive for cement stocks, there are downside risks to profitability growth from rising input costs. Analysts say, although the sector’s top-line will show improvement in quarters to come, operating margins could take a hit in absence of price hikes.