Risks mount for the cement supply chain

Like all other sectors of the Indian economy, cement has been hit hard by the Covid-19 pandemic, and has seen the entire supply chain disrupted.

To gauge the impact, CRISIL Research conducted a survey of 100+ dealers across 13 states. Notably, trade channels account for ~60% of total annual sales of cement and are, therefore, a vital indicator of the sector’s condition.

The findings indicate a stretched credit cycle, which will elevate their working capital levels.

Key takeaways from the survey

• Almost all the dealers foresee 10-30% drop in demand in fiscal 2021 due to delay/freeze in construction activity
  
• More than 60% respondents have a minimal inventory of 2-4-days, but spoilage is a concern nonetheless
  
• The dealers’ credit cycle is likely to get stretched from 4 weeks to 8 weeks over the next 2-3 quarters
  
• Working capital requirement is expected to increase 12-17% in a best case scenario, assuming dealers are able to limit operational expenditure, reduce credit sales and infuse additional capital in their business. A probable risk of retailers defaulting on payment dues will aggravate the financial pain
  
• Traders are hoping for manufacturers’ support in terms of better margins (higher incentives)
  
• Chances of swift resumption to normalcy post the unlocking look bleak because of delay in return of migrant workers and resumption in freight operations
  
• Urban centres are likely to fare worse than rural ones given higher dependence on migrant labourer