: Cement dealers staring at 30% demand contraction #FinanceIndia #StockMarketNEWS #Business New Delhi: Cement dealers across the country expect a significant slackening in sales, elongated credit period

@StockMarketNEWS Tue 19 May, 2020

Posted in: #Business #FinanceIndia #StockMarketNEWS

Cement dealers staring at 30% demand contraction #FinanceIndia #StockMarketNEWS #Business
New Delhi: Cement dealers across the country expect a significant slackening in sales, elongated credit period to retailers, and higher working capital needs in the wake of the Covid-19 pandemic this fiscal, a survey on the sector has said.

The CRISIL Research survey said that whopping 93 per cent of the respondents expected volumes to shrink 10-30 per cent in fiscal 2021 in the base case scenario, that is, the lockdown easing in May. Extension beyond this can worsen these figures.

Also, 70-80 per cent dealers felt individual home builders would delay new construction due to gloomy business outlook, fear of income loss, labour shortage, and uncertainty with respect to resumption of normalcy. The survey was conducted with 100+ dealers spread across Tier 1 and 2 centres in 13 states to glean insights on the pandemicâ€™s impact. Trade channels account for 60 per cent of annual cement sales.

According to survey, over 60 per cent of dealers are holding low inventories (2-4 days), but spoilage concerns persist. Dealers are hopeful of liquidating inventory by offering discounts as soon as the lockdown eases, to contain spoilage and get volumes going.

On the other side, payment delays from retailers appear inevitable considering these players are small and fragmented, and most likely to delay payments amid liquidity crunch, gloomy demand outlook, and cement spoilage concerns. That, in turn, would stretch the receivables cycle and negatively impact cash flows of the dealers, as much as 95 per cent of whom offer credit.

Rahul Prithiani, director, CRISIL Research, â€œThe cycle of recovery of retailer dues is expected to extend by 4-6 weeks over and above the usual four weeks. This will potentially increase the working capital requirement of dealers by 12-17 per cent, even as they reduce credit exposure, infuse capital, and curb non-essential expenditure. â€?

The elongated working capital cycle could last at least a couple of quarters, and the risk of retailers defaulting on payment dues would aggravate the financial pain. However, 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.

More than 90 per cent of the dealers surveyed are hopeful of manufacturersâ€™ support in terms of better margins/incentives, or liquidity support to weather the hard times.

Guranchal Singh, Associate Director, CRISIL Research, â€œAn intermittent rise in daily wages, freight cost, and construction material prices will deter restart of construction activity. Return of labour, freight disruption and dwindling consumer confidence will weigh on resumption of normalcy in the near term.