Moneycontrol PRO
Upcoming Webinar:Prashant Shah explains ‘Irrelevance of Bull & Bear Markets for Success in Technical Analysis’. Register For Free!

Second wave of COVID-19 to result in reduced cement off-take in Q1 FY2022 by 25% Q-o-Q: ICRA

Pent up demand is likely to push sales volumes from Q2 FY2022

The second wave of COVID-19 has adversely impacted domestic cement production with the all India production declining by 25% on a quarter-to-quarter basis and 35% month-on-month in April 2021, an estimate by ICRA has said.

However, a pent-up demand is expected to push the volumes starting July-September quarter, it said.

With most states imposing lockdowns due to the spread of COVID-19 infections to rural regions, (unlike last year wherein mostly urban areas were impacted), the cement off-take in May 2021 is likely to further decline by 35%-40% M-o-M, it said.

The recovery in the rural regions is expected to be gradual. However, the overall pent-up demand is likely to drive the off-take once lockdowns are relaxed, it said.

“While the sales volumes are expected to be lower by 25% Q-o-Q in Q1 FY2022; the pent-up demand is expected to push the volumes starting Q2 FY2022. The cement companies have undertaken price hikes by an average of 5% Y-o-Y in April 2021. This hike is driven by the increase in the input costs, primarily power and fuel expenses and freight expenses over the last few months,” said Anupama Reddy, Assistant Vice President and Sector Head, ICRA.


COVID-19 Vaccine

Frequently Asked Questions

View more
How does a vaccine work?

A vaccine works by mimicking a natural infection. A vaccine not only induces immune response to protect people from any future COVID-19 infection, but also helps quickly build herd immunity to put an end to the pandemic. Herd immunity occurs when a sufficient percentage of a population becomes immune to a disease, making the spread of disease from person to person unlikely. The good news is that SARS-CoV-2 virus has been fairly stable, which increases the viability of a vaccine.

How many types of vaccines are there?

There are broadly four types of vaccine — one, a vaccine based on the whole virus (this could be either inactivated, or an attenuated [weakened] virus vaccine); two, a non-replicating viral vector vaccine that uses a benign virus as vector that carries the antigen of SARS-CoV; three, nucleic-acid vaccines that have genetic material like DNA and RNA of antigens like spike protein given to a person, helping human cells decode genetic material and produce the vaccine; and four, protein subunit vaccine wherein the recombinant proteins of SARS-COV-2 along with an adjuvant (booster) is given as a vaccine.

What does it take to develop a vaccine of this kind?

Vaccine development is a long, complex process. Unlike drugs that are given to people with a diseased, vaccines are given to healthy people and also vulnerable sections such as children, pregnant women and the elderly. So rigorous tests are compulsory. History says that the fastest time it took to develop a vaccine is five years, but it usually takes double or sometimes triple that time.

View more

While the cement prices are likely to largely sustain in the near term, the higher input costs, due to the increasing crude oil prices and under absorption of overheads are likely to result in a moderation of EBIDTA/MT to around Rs. 1200/MT in Q1 FY2022, lower by 20% Y-o-Y and 6%-7% Q-o-Q, she said.

In terms of sales trend, the COVID-19 disruption adversely impacted the cement demand in FY2021 resulting in the sharpest de-growth over the last decade. Domestic cement production reported a decline of 12% Y-o-Y to 294 million MT, in line with ICRA’s estimates.

The major impact on production was felt in Q1 FY2021 with a production contraction by 38.3% Y-o-Y owing to the adverse impact of the nation-wide lockdown with the construction activities coming to a halt, primarily in April 2020.

While the production picked up in Q2 and Q3 FY2021 supported by rural demand, it remained lower on Y-o-Y basis. In Q2 FY2021 and Q3 FY2021, the production was lower by 10.6% Y-o-Y and 4.0% Y-o-Y respectively. However, the production reported a growth of 5.2% Y-o-Y in Q4 FY2021, majorly driven by the higher volumes in March 2021, ICRA said.

Further, this rebound in production was driven by sustained rural housing demand and pick up in the infrastructure activity. The production in March 2021 at 32.9 million MT, almost reached pre-COVID level high of 33.1 million MT, that reported in March 2019.

As for the key credit parameters, ICRA says that notwithstanding the capacity addition increase in FY2022, the incremental borrowings for cement companies is likely to remain low owing to the healthy cash generation and strong liquidity. While some moderation is expected on debt coverage metrics owing to the expected dip in the operating margins; it will still remain at healthy levels.
Moneycontrol News
first published: Jun 14, 2021 09:29 pm

stay updated

Get Daily News on your Browser
ISO 27001 - BSI Assurance Mark