Hits cement demand; but likely to be transient

Mumbai: Even though the ongoing temporary shutdown in the wake of Covid-19 has impacted construction activities across the country resulting in a decline in cement uptake, the hit on domestic demand is transient, says Kotak Institutional Equities.

According to the domestic brokerage firm, novel coronavirus or Covid-19 led restrictions would dent cement demand from March 2020 onwards. However, it is expected to recover once normalcy returns.

"Historically, Indian cement demand has seen a weak correlation with global demand but a strong correlation with the domestic economy. Even as the restrictions have caused a dent, limited impact of Covid-19 in rural areas would partially cushion the near-term impact on domestic demand," it said in a report.

The agency expects a 3-7 per cent year-on-year increase in demand in FY2021/22E as against 5-6 per cent earlier. "We see the Indian cement sector better-placed than most in the current situation with drivers linked mainly to the domestic economy. Hit on domestic demand, if any, due to Covid-19, should be transient.

Also, cost benefits from subdued commodity prices should offset any pricing-led pressure on margins," it said. Cement sector is a direct play on the Indian economy with housing and infrastructure forming 85 per cent of the total demand. "Further, the housing demand is dominated by rural housing, which is underpinned by government subsidy and agricultural income. Being a bulky commodity, the sector has negligible trade (both import and export) and largely a local play with a cement bag having an average lead distance of 300 km," it said.