Lower impact of coronavirus infections in rural/semi-urban areas, better availability of incoming labourers and pent-up demand aided sales
Some dealers’ checks said government initiatives to generate employment in rural areas aided demand for last-stage projects, road and railway construction
After a slumber, cement volumes saw some pick-up in the months of May and June, although the off-take was not uniform across India. Cement sales picked-up in the east, north and central India, but was the weakest in the south followed by western India.
Dealers’ channel checks showed that sales in the north/central/east regions fell 20-25% year-on-year (y-o-y) in the June quarter. However, the decline was much steeper in the south and west regions at nearly 45% and 30%, respectively, y-o-y. Overall, volumes for the industry are estimated to decline by 30-35% y-o-y in the June quarter.
Analysts outlined a couple of factors that aided pick-up in cement sales in the north, central and eastern India. These included, lower impact of coronavirus infections in rural/semi-urban areas, better availability of incoming labourers and pent-up demand. Some dealers’ checks said that government initiatives to generate employment in rural areas aided cement demand for last-stage projects, road and railway construction.
For southern India, the overall demand scenario remained weak. With a lot of labour migrating out of this region, even if there was some pent-up demand, companies may not have been able to benefit from it, analysts said. In the western region, especially the key state of Maharashtra, the share of the non-trade segment is large and demand remains muted there, analysts added. Non-trade cement is with reference to goods sold by the manufacturer directly to the consumer. Trade cement is sold by the manufacturer to the dealers, who in turn sell to the consumers.
Across India, demand in the urban segment remained weak. Labour availability affected demand from the infrastructure segment as most construction companies reported that labour availability across various sites was 50-70% of normal, analysts said. Infrastructure contributes around 30% to the overall cement demand.
As for stocks, key South-companies are India Cements Ltd, Ramco Cements Ltd, Sagar Cements Ltd, Dalmia Bharat Ltd along with pan-India companies ACC Ltd and Ambuja Cements Ltd, have some exposure to western India. The performance of most cement stocks has been unimpressive, so far in this year.
While there has been improvement in sales volume in the last two consecutive months, cement sales have a long way to go to reach their pre-Covid growth. Analysts estimate that the average volume is still down by 25-30%.
For the cement sector, both the June and September quarter are seasonally weak. Usually, cement demand sees significant improvement in the second half of the year. However, this time, analysts expect a meaningful demand recovery from fiscal year 2022.
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