Cement sector may take 15-20% demand hit on demonetisation

​Mumbai : Post currency demonetisation, the cement sector is likely to witness 15-20 per cent demand drop until December 2016 and a subdued three per cent growth in the fourth quarter of this fiscal, a report said.

“We now factor a 15-20 per cent demand drop in the near-term until December 2016 and then a subdued three per cent growth in 4QFY17. Investors believe that the drop in near-term demand is likely to be severe. The demand may see a subdued three per cent growth in Q4FY17 and an upturn is expected only in FY20 as compared to FY19 earlier,” Deutsche Bank Markets Research said in its report here.

“We see some infra sector demand offsetting weakness in demand from the housing segment. We may also see a gradual reduction in mortgage rates, which could bring back some genuine demand,” Research Analyst Chockalingam Narayanan said.

“Looking at the demand-supply model, we expect the regional balance to first shift in favour of northern and central India. Eastern India is likely to see the largest reduction in the utilisation over the next 12 to 18 months,” Narayanan said.

The cement sector is hopeful that infrastructure projects would offset weakness in the realty sector. With the government’s balance sheet likely to be in a much better fiscal position, the industry expects a sharp pickup in infra demand – in line with the government’s vision to push public spending.

Currently, only road and railway sector spending is primarily driven by central government agencies. State government finances, on the other hand, may come under some pressure, as a good 5-10 per cent of their revenue receipts come from the property sector.

To that extent, their infrastructure sector spend – on rural roads, urban development projects (metro/mono-rail), affordable housing, irrigation etc – may be impacted.

“This is likely to be mitigated if the central government passes on a higher proportion of its improved finances to the states,” the report said. The sector was expecting 55-65 per cent of the demand from housing (35-40 per cent rural and 20-25 per cent urban); 17-20 per cent from infra and 25 per cent from institutions and commercial realty.