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Market roundup | Debt protection metrics of cement firms to weaken

LiveMint logoLiveMint 20-06-2017 Livemint

Debt protection metrics of cement companies is likely to weaken in the current fiscal year (FY18), dented by a slew of acquisitions that the sector witnessed last fiscal year (FY17), according to Crisil Ratings. FY17 was a landmark year that saw the sector signing Rs32,000 crore of acquisitions. That’s the biggest consolidation the sector has seen in a year, and was financed through debt of Rs25,000 crore, said the Crisil report.

The rating agency expects net debt to operating profit ratio (Debt/Ebitda) rising to 2.9 times by the end of FY18 from 1.5 times in FY17. Debt/Ebitda ratio measures a company’s ability to repay the incurred debt. Ebitda is short for earnings before interest, tax, depreciation and amortization.

However, the agency sees it swiftly improving to 1.6 times by FY20 aided by volume-led growth in operating profit. Crisil rates 26 companies in the cement sector, representing 54% of the installed capacity in India.

Global growth to hit high on EM import demand

Global economic growth is expected to rise to a seven-year high of 3.1% for 2018 and this rise will be more broad-based with improvements in both advanced and emerging economies, according to the research wing of Fitch Ratings.

Macro policies and tightening labour markets are supporting demand growth in advanced countries, while the turnaround in China’s housing market since 2015 and the recovery in commodity prices from early 2016 have fuelled a rebound in demand from emerging market (EM) economies. The ratings provider in a note said that acceleration of import demand from EM economies since 2016 will give a fillip to global growth.

Out of the 20 advanced and emerging economies that Fitch considers, the rating agency has upgraded the growth forecast of 14 of them in 2017. For 2018, forecasts have been upgraded for 17 countries.

Asia-Pacific to lead power sector investments

The Asia-Pacific region, which includes China and India, is estimated to drive investments in the power sector in the coming decades. A Bloomberg New Energy Finance report on the power sector estimates the Asia-Pacific region to see almost as much investment as the rest of the world combined ($4.8 trillion) in 2017-40.

China and India alone are said to be a $4 trillion investment opportunity. “These (China, India, respectively) countries account for 28% and 15% of all investment in power generation to 2040,” adds the Bloomberg New Energy Finance report. Of this, wind and solar both are estimated to attract around a third of total investment.

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