Cement and steel, two indicators of the health of the construction sector, have both seen a visible slowdown. All the 14 listed cement companies have seen their sales slump on a yearly basis and more so in the last quarter.
Rating agency ICRA says growth in domestic cement demand is expected to slowdown to about 7 percent in FY20. Cement prices have softened considerably, particularly owing to monsoons in the last two months, but what are the underlying themes behind this tepid growth projection? A cross section of dealers and retailers in the Kalher-Bhiwandi belt, on the outskirts of Mumbai, say reduced liquidity in the market and a complete shut down in new construction activity has led to a long term impact and they see no near term triggers for revival.
Ramesh Pashkanti, cement dealer and retailer in Bhiwandi said, “While large builder projects are stuck, even individual level house works have slowed. We have seen almost 70-80 percent decline in wholesale sales in last 3 years and the retail sales are down 50 percent”
For most retailers the inventory movement has slowed down considerably, “Earlier one truck load of cement was sold in a day, now it is stuck for six days. But we cannot reduce our purchases from the companies.”
Ambuja is the leading player in Bhiwandi-Kalher belt, followed by Ultratech and ACC. While there are smaller, local brands in the market they have not seen any business move to them in the slowdown. While market shares of large brands have remained the same, the overall market has shrunk and all brands are seeing de-growth.
For dealers in both Bhiwandi and the adjoining warehousing hub of Kalher, the focus has shifted to securing payments and selling on cash. Most retailers who CNBC-TV18 spoke to said they were focusing more on walk in customers, because retail sales ensure immediate payments.
Kalher is a rural sales dependent market, which is fast seeing a conversion with farmers selling or leasing their lands to build warehouses. This creates a steady lease income for farmers and hence Kalher consumption market behaves differently than the adjoining farm dependent rural regions.
Vivek Kondalika, Ultratech Dealer in Kalher said that the dealers are now forced to extend credit to long term customer and credit cycle has moved from 15 days to 2-3 months. However they are trying to service those clients who pay on cash. “Even if this means selling on the cost price, we are doing that. At least the payments are guaranteed.”
Murari Poddar, Ambuja Dealer, Bhiwandi expects cement prices to firm up in the next month as monsoons recede and festive season kicks in and some construction activity and government led infrastructure projects resume. Expectation is of cement prices touching Rs 345-350/bag at the dealer level and further go up by Rs 30-40/bag by the end of the year. However none of the dealers believe there is any visibility of a revival in the cement market till long term reforms in the real estate sector and fund flows to the sector are resumed.