Fourth quarter results for the last financial year announced by some of the cement companies have revealed some interesting facts. There is a decrease in the sales volume to the extent of 13% in the fourth quarter of FY 2020 as compared to the same period in the previous financial year which is expected due to outbreak of COVID-19 and lockdown. However, it should be noted that cement consumption during the fourth quarter of 2018-19 was spiked due to pre-election demand (for projects). On the other hand, during March 2020, there was loss of production as well as sales for 8-10 days due to countrywide lockdown. This has pulled down the cement consumption figure for the fourth quarter which saw decent growth in demand during the first two months of the quarter.
Not so positive news on capex front
However, on projects front there are some negative news as many of the expansion projects are put on hold due to uncertainty in the market. Before the outbreak of COVID-19 the industry had planned expansion projects to add nearly 60 MTPA capacity in next three years. Most of these projects were in various stages of implementation. Most of the players are now reviewing their plans now due to changed circumstances.
Ultratech caps its capex for the year
Ultratech has decided to cap its capex spends to Rs 1,000 crore in FY21 as it deferred its expansion projects, underscoring their focus on conserving cash and deleveraging the balance sheet. Of the total capex planned, nearly Rs 700 crore will be spent on annual maintenance. The company will spend Rs 120 crore on Bara grinding unit and another Rs 120 crore for the Bicharpur coal block. It has deferred capex for the Cuttack grinding unit to FY22. Further, the company has not allocated any capex spend for Dalla Super in FY21.
Shree Cements, on the other hand, plans to commission 6MTPA capacity but the commissioning will be delayed by 3 months owing to the lockdown. However, the expansion projects which were planned earlier have been deferred owing to uncertainty due to COVID-19.
Mixed response by Lafarge Holcim group companies
ACC, a subsidiary of Lafarge Holcim, is re-evaluating its 5.9MTPA of expansion program following the outbreak of COVID-19 and resulting impact on demand and expected to take a call by end of June 2020 on the same. On the other and, Ambuja Cements’, another group company of Lafarge Holcim, Greenfield unit at Marwar Mundwa, with 3.1MTPA clinker and 1.8MTPA grinding capacity, is on track for commissioning by CY20 end.
JK Lakshmi holds back brownfield expansion
Meanwhile, JK Lakshmi has put on hold its brownfield to be announced expansion plan of 2.5MTPA (1.5MTPA clinker) considering the ongoing COVID-19 situation. However, the Company has earmarked a capex of Rs 150 crore and Rs 50 crore in JK Lakshmi and Udaipur Cement, respectively, in FY21.
Birla Corp to go ahead with some projects
Birla Corp has delayed its brownfield expansion at Kundanganj (UP) with a capex of Rs 250 crore whereas it will continue with the expansion at Mukutban (Maharashtra) with 3.9MTPA grinding capacity with 2.64MTPA clinker, which is expected to be commissioned by June 2021. It has spent Rs 1090 crore on the project till date. The project to expand clinker capacity at Chanderia (Rajasthan) is also on track and is stated to be completed this year. Unlike other cement companies, Birla Corp has not completely shelved its expansion plans given its high utilization rates currently.
One of the disadvantages of cement is that it is a very bulky commodity with limited shelf life. Thus, continued and sustained demand for the commodity is essential for the industry to maintain its capacity utilisation at an optimum level. However, at this juncture there is uncertainty prevailing in the market with no clear signal about the future demand. Construction and real estate industry are the main consumers of the commodity and both are passing through difficult times due to issues relating to migrant workers, liquidity crisis, etc. Once these issues are sorted out and user industries start functioning normally, sentiment in the cement industry too is likely to change. Then most of the players who have deferred their capex plans may revise their schedule.