HomeNewsCement sales to decline by more than 20% - CRISIL

Cement sales to decline by more than 20% – CRISIL

In fiscal 2021, most of the dealers expect sales to decline more than 20%, says a CRISIL report titled “Cracks loom for cement dealers.” The report is based on a survey of 100+ cement dealers across 13 states. Cement sales will decline by 20% in a base case scenario, which assumes lockdown relaxation in May. An extension of the lockdown will result in further downside.

According to the report, the main reason is delay in construction by individual home builders (IHB) — who account for 60-70% of sales in rural areas and 40-50% of sales in urban centres — and small real estate developers. For them, labour shortage and the resultant wage hike are key factors. The delay could be anywhere between 4 and 6 months depending on how the lockdown pans out. This may result in 5-10% of end-users to actually call off their plans due to the gloomy business/ income outlook.

Nearly 95% of the dealers surveyed typically offer credit to retailers and key end-users such as contractors and small real estate companies. Recovery of outstanding dues has become a huge challenge as small retailers are reeling under liquidity crunch amid dwindling demand, and inventory spoilage and backlog. According to the report, the credit cycle is likely to get stretched from 4 weeks to 8 weeks for the next 2-3 quarters of this fiscal. About 70% of the dealers surveyed confirmed that most of the customers (especially contractors) might also delay the release of payment. As a result, one can expect large and mid-sized dealers to see a hike in working capital requirement of 13-17% and 10-15%, respectively.

Dealers expect the working capital cycle to improve in the second half of fiscal 2021 as demand picks up and receivables decline gradually. Once normalcy returns, they plan to reduce credit exposure, infuse additional capital and curb non-requisite expenditure to limit increase in working capital requirement. The collateral-free MSME loans announced by the government on Wednesday will come as a big relief, since it will help cement dealers access working capital debt.

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