With more housing projects, cement companies bet on demand revival

Mumbai, September 06, 2014 – Cement companies are expected to add 56 million tonnes (mt) capacity over the next three years on expectation of a revival in demand.

The cement capacity in India may register a growth of 8 per cent by next year end to 395 mt from the current level of 366 mt. It may increase further to 421 mt by 2017-end.

Almost all the major cement companies such as UltraTech Cement, ACC, Ambuja Cement and Dalmia Cement have announced expansion plans.

Daljeet S Kohli, Head of Research, IndiaNivesh Research, said cement demand is likely to improve with the Government plan to provide housing for poor. In the South, the demand should come from the Telangana Government’s effort to build a new capital and infrastructure development.

“We expect the capacity utilisation also to improve from here on,” he said.

The southern region (Tamil Nadu, Karnataka, Kerala and Andhra Pradesh) will witness the maximum capacity addition of 22 mt followed by 16 mt in the central region, which includes Uttar Pradesh and Madhya Pradesh.

The north zone comprising Rajasthan, Jammu and Kashmir, Himachal Pradesh, Punjab, Uttarakhand and Haryana may add 12 mt. The capacity addition will be the least in Maharashtra, Goa and Gujarat at 6 mt.

The all-India capacity utilisation may improve marginally to 70 per cent over the next three years from the current level of 67 per cent. Cement companies effort to improve capacity utilisation may result in supply exceeding demand and make it difficult for them to increase prices.

Murtuza Arsiwalla, Research Analyst, Kotak Institutional Equities Research, said the cement sector may remain volatile as fresh capacity addition would cap utilisation level even if demand grows to double digit.

Interestingly, cement demand has crossed 10 per cent growth only on four occasions in the last two decades. It remained in single digits for the last four years, he said. Business Line