A broad-based economic growth and robust infrastructure spending will drive the performance of building materials companies, especially cement in India over the next 12-18 months, Moody’s Investors Services said in a report. Factors such as the strength of the end-user markets, demand characteristics and to a lesser extent pricing power and profitability will be credit positive for the companies in this segment.Read also: How cement stocks fared in 2022?In India, cement demand is seen as solid driven by infrastructure-led investments and mass residential projects that are coming up all over the country. The global rating agency said that cement production will rise 6-8 per cent over fiscal 2023 and 2024, on top of the 22 per cent surge seen in fiscal 2022. The agency has forecast the current fiscal year’s cement output at over 350 million tonnes and well over 400 million tonnes next financial year.The housing sector accounts for 60-65 per cent of cement demand and this will be a key driver for the segment. The thrust on infrastructure and road projects is also seen to sustain the demand. The momentum in building roads and highways is seen to continue over the next two years as well. Last year over 12,000 km of highways were laid. In the Union Budget announced earlier this month, the central government allocated $1.8 billion for safe housing, clean drinking water, and sanitation as well as increasing road connectivity. It also set aside $9.6 billion to address the acute shortage in urban housing. 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 said.It forecast UltraTech Cement’s operating margin to fall to 18 per cent in 2022-23 and to be at 20 per cent in 2023-24, compared to the 23-26 per cent range seen in the last two years. It also said that expansion in capacities by cement producers will likely keep capacity utilisation under 70 per cent and prevent sharp price increases. SHARE
Copy linkEmailFacebookTwitterTelegramLinkedInWhatsAppRedditPublished on February 15, 2023

Source link