Cement, steel sectors are likely to pick up
Auto, auto components and telecom sectors are likely to remain subdued in financial year 2020 (FY20), while cement, construction and steel sectors are likely to pick in FY20, according to ICRA’s performance review and outlook for the Indian corporate sector.
In the automobile sector, the demand will remain subdued for most segments in FY20 owing to rising ownership cost and subdued rural demand.
“For commercial vehicles, slowing industrial growth, surplus capacity due to revised axle load norms, weak freight rates and rising ownership cost are some of the key challenges. For passenger vehicles, rising ownership cost, subdued demand from metros and tier 1 cities, weak demand from fleet operators and slowing rural demand are some of the key challenges,” said Shamsher Dewan, vice-president and sector head, ICRA.
Despite expectation of slowdown in automobile sales, the auto component industry is expected to grow between 10-11% in FY20 supported by increasing content per vehicle owing to transition to BS-VI and safety norms.
In telecom, despite consolidation and deleveraging plans, credit metrics are likely to remain weak for the firms. In order to address the unmanageable debt levels, the continuing operators have lined up sizeable deleveraging plans, which are expected to result in reduction in debt to ₹4.3 lakh crore as of March 31, 2020.
“Despite the reduction in debt levels and some improvement in operating profit, the coverage indicators would continue to remain weak as reflected by the estimated interest coverage of 1.4x and debt/EBITDA of 8x as on March 31, 2020,” he added.
ICRA expects cement demand growth of around 8% in FY20. This growth is likely to be driven by housing, primarily rural housing and affordable housing, and improved focus on infrastructure segments, mainly road, railway and irrigation projects.
The construction companies are likely to benefit from an healthy order book position supported by inflows from diverse sectors.
The domestic steel demand growth is likely to moderate to 7% in FY20 from 7.5% in FY19 because of weakness in demand for flat products, according to ICRA.