The Covid-19 second wave has adversely impacted domestic cement production with the all-India output declining by 35 per cent M-o-M in April 2021; lower by 4 per cent compared to April 2019.
With most states imposing lockdowns due virus infections spread to rural areas, the May off-take is likely to further decline by 35-40 per cent M-o-M.
As per ICRA, 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.
Anupama Reddy, Assistant Vice President & Sector Head, ICRA says, “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.”
Impact on sales
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 per cent Y-o-Y to 294 million tonnes, in line with ICRA’s estimates. The major impact was felt in Q1 FY2021 with a production contraction by 38.3 per cent 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 per cent Y-o-Y and 4.0 per cent Y-o-Y respectively. However, the production reported a growth of 5.2 per cent Y-o-Y in Q4 FY2021, mainly driven by the higher volumes in March 2021. 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, reported in March 2019.