Demand for cement to improve over next 12-18 months: Moody’s

Moody’s said that while the outlook looks promising for the cement sector, for most of the current financial year, companies have seen their profitability take a hit on rising costs of pet coke, coal and diesel

Saurav Anand
First Published15 Feb 2023
India’s cement production will climb by around 6-8% over fiscal years 2023 and 2024 (Hindustan Times Delhi India)
India’s cement production will climb by around 6-8% over fiscal years 2023 and 2024 (Hindustan Times Delhi India)

New Delhi: India’s infrastructure-led investments and mass residential projects will drive up the demand for cement and other building materials over the next 12-18 months, Moody’s Investors Services said in a report.

According to rating agency, India’s cement production will climb by around 6-8% over fiscal years 2023 and 2024, following a 21% jump for the fiscal year ended March 2022.

However the industry is unlikely to enjoy unusually high profits as it did in fiscal 2022, it added.

“A growing housing sector, which typically accounts for 60%-65% of India’s cement consumption, will remain a key demand driver. Also, continued large investments in roads and infrastructure projects will fuel cement demand,” Moody’s said.

“India built 12,000 kilometers of highways in 2022 alone and this momentum will likely continue in 2023 and 2024, supported by various government initiatives,” it added.

Furthermore, in the Union Budget 2023-24, the government has allocated $1.8 billion for the creation of safe housing, clean drinking water and sanitation, and increasing road and telecom connectivity, among other initiatives.

The government has also allocated $9.6 billion to address urban housing shortages, the credit rating agency said.

Moody’s said that while the outlook looks promising for the cement sector, for most of the current financial year, companies have seen their profitability take a hit on rising costs of pet coke, coal and diesel.

“A sequential, quarter-on-quarter decline in these costs will prevent a further sharp decline in profitability, although a return to the unusually high profits cement producers enjoyed in fiscal 2022 is highly unlikely,” it added.

Moody’s also expects UltraTech Cement’s operating margin to fall to 18% in 2022-23 and to be at 20% in 2023-24, compared to the 23-26% range seen in the last two years.

It added that following the acquisition of Holcim Ltd’s Indian cement operations by Adani Group, several cement producers announced new capacity additions totaling 60 million tonnes that will likely keep capacity utilization under 70% and prevent sharp price increases.

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