Cement Makers Resume Operations Amid Lockdown But Demand, Offtake Key

India’s cement makers look to resume operations in a phased manner from today after the government allowed select activities to kick-start the economy stalled by an extended coronavirus lockdown.

But demand from end users and offtake pose a challenge.

India’s cement demand is expected to drop 70-80 percent in April and 20-25 percent in the ongoing financial year, according to HM Bangur, managing director at Shree Cement Ltd. The situation, however, will improve from May, he said in an interview with BloombergQuint.

Prime Minister Narendra Modi extended the lockdown through May 3 as India stepped up its fight to contain the virus spread among its 1.3 billion citizens. The government will evaluate every town, district and state until April 20 for adherence with lockdown, Modi had said in a televised address on April 14—the day when the 21-day shutdown was scheduled to end. Areas that are less likely to turn into a hotspot may be allowed to open certain essential activities from April 20, he had said.

The pandemic has brought the whole world to a virtual standstill and businesses are feeling the impact. Indian cement mills, which according to Investec witnessed 6.8 percent year-on-year volume growth in January-February 2020, too faced disruption after operations stopped. Over the last week, several cement makers said they were looking to restart work, or were seeking approval to do so, according to exchange filings.

Also Read: Eased Lockdown Conditions May Kickstart 30% Construction Activity

Announcements by key cement makers:

• UltraTech Cement: India’s largest cement company restarted operations at select locations after obtaining necessary permissions.
• ACC: Resumed operations at various locations from April 20 in a phased manner after obtaining necessary permissions.
• Ambuja Cements: Seeking requisite permissions to resume operations at various locations in a phased manner.
• Shree Cement: Seeking approvals to restart operations.
• JK Lakshmi Cement: The mid-sized cement maker’s grinding units at Kalol and Surat in Gujarat have become partially operational.
• Sanghi Industries: The company partially resumed operations at Sanghipuram, Kutch in Gujarat.
• India Cements: Seeking approvals to resume operations.
• JK Cement: Commenced operations in Karnataka and will shortly start in Uttar Pradesh.
• Mangalam Cement: The company is in the process of resuming operations at Rajasthan.

Here’s a round-up of analysts’ comments on the cement sector:

CLSA (Indrajit Agarwal)

• Sees this as positive for the sector as the April-June quarter is key for construction activity in India before disruptions due to monsoons.
• While the resumption of production is incrementally positive, clarity on demand from user entities or offtake will be key.
• Labour availability, logistics and priority of user entities are few concerns that could hinder an immediate pick-up.

Edelweiss (Navin Sahadeo)

• Sees recovery to happen in FY22.
• Extent of recovery cannot be ascertained yet, but forecasts FY21 cement demand would dip 9 percent against 6 percent growth earlier.
• That’s because of labour displacement issues and economic impact of the lockdown.
• Expects companies focused in east India to recover faster due to low intensity of Covid-19 cases.

Credit Susisse (Lokesh Garg)

• Partial lockdown relaxation can help cement companies.
• Relaxation for the construction sector in the revised guidelines from the Ministry of Home Affairs can be a positive and can help the sector get back on feet and have a quicker restoration of normalcy once the lockdown is completely over.

Macquarie (Ashish Jain)

• Demand pickup is likely by early or mid-May as it factors in an additional two-three weeks for labour, machinery and material to be available.
• The three important factors to track now are demand, debt on books and conditions of dealers for the cement sector.

Morgan Stanley (Gaurav Rateria)

• Even after supply normalises, demand is likely to remain challenged, given re-purposing of government-related spending to provide relief measures.
• Expects industry demand to decline 1.5 percent in FY20 and 5 percent in FY21. In base case scenario, demand is expected to decline 10 percent in FY21.
• Downgraded the industry view to ‘cautious’, given weak demand and a muted pricing environment.

Investec (Ritesh Shah)

• Sees a steep 40-50 percent volume contraction in first quarter of FY21 and only a gradual recovery as lockdown announcement had a detrimental impact on offtake.