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Home Markets With capex strategies delayed, cement sector could see far better cash flows

With capex strategies delayed, cement sector could see far better cash flows

The by now battling cement marketplace has been hit difficult by the coronavirus crisis. Management commentaries on demand revival haven’t been extremely encouraging. So, quite a few cement companies have delayed their capital expenditure (capex) plans.

For occasion, pan-India focussed cement corporation the Ultratech Cements Ltd has guided for a capex of ₹10 billion for fiscal year 2021 (FY21). This is reduced than the ₹16 billion incurred in fiscal year 2020. In a write-up earnings conference call with analysts, the company’s management claimed that it has allotted any capex spend for Dalla Super in FY21. Also, it has deferred capex for the Cuttack grinding unit to FY22.
Its peer Shree Cements Ltd will make a decision on its big capex program of doubling capacities in 6 years, immediately after demand conditions strengthen. Speaking of demand outlook, the company’s management mentioned that it expects additional than 20% volume decline in fiscal year 2021.
Even though ACC Ltd is increasing its capacity by 18%, the administration expects commissioning to happen by calendar 12 months 2022 – this is after factoring in a possible delay of 6-12 months thanks to covid-19.
Not just pan-India focussed cement firms, a slew of regional firms this sort of as India Cements Ltd, JK Cements Ltd and Orient Cements Ltd, have also postponed their capex options.

In accordance to analysts, leveraged balance sheets of many cement players, who have been on an acquisition spree, must get some breather from this.
“The operating cash flow era has been strong in the modern previous but the free cash flow era has been impacted because of to acquisitions and expansions. We hope the marketplace to focus on cash and, for this reason, capex would possible appear off, which should support free cash flow,” mentioned a report by Jefferies on 19 June.
Even though the latest cement dealers’ channel look at is indicative of pent-demand, one particular is not absolutely sure whether the improvement will previous.
“Our channel checks with dealers suggest that cement prices receded in June 2020 with easing supply-facet constraints. Rural and pent-up demand has led to higher-than-expected volumes in Might-June 2020 and the marketplace could just go through ~40% yoy decline in 1QFY21E volumes, much better than before anticipations,” analysts at Kotak Institutional Equities mentioned in a report on 24 June.

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