CRISIL projects that revival in cement prices in 2011-12 will increase the operating margins of cement makers by around 200-300 basis points  After recording sluggish growth in the first quarter of 2010, increasing production and sales volume in May gave the cement sector a reason to cheer, thanks to higher consumption by the property sector.“The cement industry has grown by 8-10% over the last 5 years and demand for cement is expected to remain healthy over the coming years,” says P K Goyenka, executive director of Andhra Cements Ltd, a leading Indian cement manufacturer.
To justify his statement, Mr Goyenka adds that cement is a key ingredient for sectors such as infrastructure, construction and real estate. Besides, India lags far behind in infrastructure development, when compared with developing nations like China. This clearly indicates that domestic demand for cement will only witness an upward movement over the foreseeable future.
When asked about oversupply impacting demand, he remarked that this is a short-term aspect and increasing construction activities will soon bring a demand revival for raw material.
Encouraging numbers from leaders
Five leading cement manufacturers, including JK Lakshmi Cement, Ambuja Cement, Jaiprakash Associates, Aditya Birla Group and Shree Cement reported high growth figures during May.
In May, JK Lakshmi Cement posted 14% sales growth to 0.36 million tonnes (mt) from 0.31 mt, while the US$28-billion Aditya Birla Group witnessed 5.5% jump in sales to 3.3 mt.
Sales figure of India’s third largest cement player Ambuja Cement jumped to 12.5% from 1.6 mt in May 2009 to 1.8 mt in May this year. Shree cement ranked among the top five cement makers in India reporting 15% rise in sales in May to 8.5 mt.
FY12 to hike prices and profitability
Capacity additions have bottomed out cement prices across India at present, points out sectoral analysts. Research firm CRISIL also said that cement prices are likely to witness 2-3% decline in the current financial year due to excess capacity addition.
On the brighter side, the research firm projected that there will be an increase of 5-6% in cement prices in 2011-12, following sustained demand growth (especially from the government’s current thrust on infrastructure) and sluggish pace of capacity addition.
In 2011-12, around 35 mt of capacity is likely to be commissioned, as opposed to nearly 50 mt in this financial year. “Fewer new players and high level of consolidation in the sector will boost faster recovery of the cement prices, which was not the case earlier when dips lasted for a minimum of 2 years,” opines Ajay D’souza, head of CRISIL Research.
CRISIL further projects that revival in cement prices in 2011-12 will increase the operating margins of cement makers by around 200-300 basis points.
Jeeta Bandopadhyay |
