FY19 Cement Outlook: Tailwinds from Economic Growth and Operating Efficiencies

India Ratings and Research (Ind-Ra) has maintained a stable outlook for Indian cement manufacturers for FY19. Overall market conditions will remain stable for Indian cement manufacturers, considering a gradual economic growth forecast across cement end-markets, with real estate and infrastructure helping sustain volumes. Indian cement manufacturers benefit from their ability to pass any raw material price shock and manage operating efficiency to sustain their EBITDA margins.

The outlook, however, is constrained by the possible impact of the ban on sand mining that would affect the construction and house building activities. Moreover, an increase in input cost could limit cement realisations and EBITDA per tonne.

 

The median leverage of cement manufacturers reduced to 1.96x in FY17 from 4.07x in FY14, driven by better EBITDA margins and operating efficiencies. Ind-Ra expects the credit metrics of cement manufacturers to slightly deteriorate in the medium term on account of M&A and higher capex and costs. A strong business profile and a stable EBITDA per tonne resulting from their ability to pass input price inflation would ensure that leverage remains range-bound for entities rated by Ind-Ra.

The cement industry would benefit from the recent budget, as it is more focused on various infrastructure and housing projects. Ind-Ra expects demand and capacity utilisation to remain stable in south India. In addition, the agency expects demand and capacity utilisation to increase by 5.0%-7.0% in other regions.

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