Revival of cement industry may take one year
With housing and construction the two sectors most affected by demonetization, the much awaited recovery in cement sector could be postponed by another year, HDFC Securities said in its latest report on the sector. It also cautioned against a longer slump in secondary and unorganized real estate markets which drive a large proportion of cement sales. The report further added that a rebound in infrastructure demand will not be enough to offset the slump in housing. "The vulnerability is higher for companies which derive bulk of their profitability from higher trade sales," the report said. Till October, cement apparent demand had grown by around 5.1 per cent year on year. Further, strong monsoons had lifted the possibility of strong revival in demand especially from drought hit regions in Maharashtra, Telangana and Karnataka. “However, post demonetisation thinks have taken a turn for the worse," the report said. While earnings in past 2-3 quarters were driven by cheaper pet coke prices, things are likely to flip at the most inopportune time for cement companies as spiking energy costs are beginning to sting at around the same time that volumes are likely to be low," HDFC Securities said.
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