Cement industry headed for ‘Golden Period’

Industry will stand to leverage better pricing and governments infra push


CHENNAI:  Cement industry is headed for a ‘golden period’ reminiscent of the firm prices-high capacity utilisation milieu seen over a decade ago, reviving on the back of stable demand from infrastructure projects and government housing schemes, India Cements vice chairman, N Srinivasan said. 

Indian cement factories have built capacity of over 400 million tonnes a year but been plagued by over capacity, which is nearing an end, said Srinivasan. 

Srinivasan also denied signs of slowdown and resultant job losses in the cement sector as seen in the automobile sector. India Cements expects the impasse in Andhra Pradesh—after the new government of chief minister YS Jagan Mohan Reddy decided to cancel infrastructure projects — to ease out and enable higher factory output for southern plants. 

Srinivasan said that it has been observed that the demand is being driven not just by housing projects but also infrastructure projects. The need for cement for infrastructure projects has become high and that has changed the entire face of the cement industry. There is every reason to believe that next year onwards there will much better utilisation [capacity utilization]. 

The new Andhra chief minister has cancelled infrastructure projects such as roads and buildings at the new capital region in Amaravati and some irrigation projects totalling several tens of thousands of crores on corruption allegations, sparking concerns among construction companies, cement manufacturers and banks. Srinivasan said his company, with 10 plants in operation across five states in the country, will not be affected as much as those solely dependent on Andhra Pradesh. 

He said that post elections, there has been an impact. In the south, the main contributors are Andhra Pradesh and Telangana. AP has cancelled some contracts—still it is expected to be short-lived and demand to pick up soon. 

Srinivasan’s ebullience rests on strong earnings before deductions in the recent quarter not seen in several quarters before. India Cements’ standalone net profit zoomed nearly 244% to Rs 72.4 crore. Its capacity utilisation was at 77%. Srinivasan predicts his plants to get closer to top capacity in the next year. 

Srinivasan confirmed that at present the company is around 78% and is expected to improve. In the cement industry, 85% is seen as full capacity; and by next year India Cements will cross 80%. 

India Cements’ total capacity is expected to touch 20 million tonnes on the back of a new factory in Madhya Pradesh, for which land acquisition has begun. The estimate is that the new plant will be commissioned to leverage the improved scenario predicted by Srinivasan in the next three years. Cement prices have improved in the north and holding firm in the west, although the effects of the overhang are still felt in the south. 

Having raised total cement capacity from around 175 million tonnes to nearly 365 million tonnes over a decade ago, the Indian cement industry had anticipated double-digit growth numbers that never arrived, said Srinivasan, leading to a capacity overhang that has just begun to recede, with the latent effects still felt in the south. 

Srinivasan added that if the government implements what it is talking in terms of infrastructure spending, then there will be growth in the cement industry; considering infrastructure spends have a multiplier effect as housing in rural areas will also be firm driver. 

Source: Economic Times