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Cement dealers see significant fall in sales
Cement dealers expect a significant slackening in sales, elongated credit period to retailers and higher working capital needs in the wake of Covid-19 this fiscal, rating agency Crisil Research has said
Mumbai: Cement dealers expect a significant slackening in sales, elongated credit period to retailers and higher working capital needs in the wake of Covid-19 this fiscal, rating agency Crisil Research has said.
The survey, conducted with more than 100 dealers spread across tier 1 and 2 centres in 13 states, noted that nearly 93 per cent of the respondents expect volumes to shrink 10-30 per cent in fiscal 2021 in the base case scenario with the lockdown easing in May.
To further contain the spread of pandemic, the government has announced lockdown 4.0, but has relaxed the lockdown norms in the green, orange and red zones, while the containment zones continue to see no activity.
According to the survey, 70-80 per cent dealers felt individual home builders would delay new construction due to gloomy business outlook, fear of income loss, labour shortage and uncertainty with respect to resumption of normalcy.
It further stated that over 60 per cent of dealers are holding low inventories (2-4 days), but spoilage concerns persist. "Dealers are hopeful of liquidating inventory by offering discounts as soon as the lockdown eases, to contain spoilage and get volumes going," it said.
On the other side, payment delays from retailers appear inevitable considering these players are small and fragmented, and most likely to delay payments amid liquidity crunch, gloomy demand outlook, and cement spoilage concerns.
That, in turn, would stretch the receivables cycle and negatively impact cash flows of the dealers, as much as 95 per cent of whom offer credit, the survey said.
"The cycle of recovery of retailer dues is expected to extend by 4-6 weeks over and above the usual four weeks. This will potentially increase the working capital requirement of dealers by 12-17 per cent, even as they reduce credit exposure, infuse capital, and curb non-essential expenditure," Crisil Research Director Rahul Prithiani said.
It further said elongated working capital cycle could last at least a couple of quarters, and the risk of retailers defaulting on payment dues would aggravate the financial pain.
