Home »  Money

Cement firms set for strong show on demand revival

Tuesday, 18 December 2012 - 5:29am IST | Place: Mumbai | Agency: dna
Analysts said for the first time in five years, capacity addition in fiscal 2014 is expected to be lower than the incremental demand.

Indian cement companies are set for a strong revival, driven by visible bottoming out of the industry’s capacity utilisation in the current fiscal and lower-than-expected capacity additions in the next two.

Analysts said for the first time in five years, capacity addition in fiscal 2014 is expected to be lower than the incremental demand.

Reema Verma Bhasin and Amit Rathi, analysts with Bank of America Merrill Lynch, said in the next fiscal the industry’s effective capacity utilisation will be flat on a year-on-year (yoy) basis at 71%, but is likely to rise to a sharp 76% in fiscal 2015 as demand grows.

“Compared with our earlier expectations, overcapacity is a tad higher this fiscal, but capacity pipeline for the next fiscal is sharply lower. Installed capacity growth in the fiscal 2015 is now estimated at 4% yoy versus 8% growth expected earlier,” the analysts said in recent report, adding that general elections scheduled in the next 18 months, too, could boost cement demand.

Indicating a cyclical upturn for the sector by the second half of fiscal 2014, Deutsche Bank analysts said that rising capacity utilisations and emerging logistical constraints could impede supply.

As a result, industry is likely to be more localised and would benefit all the players, they said.

“Those with upcoming capacities and a bigger presence in tight demand supply regions (UltraTech and Shree), such as western and northern India in particular, could see disproportionate benefits,” said Chockalingam Narayanan, Manish Saxena and Abhishek Puri, analysts, Deutsche Bank, in a sector update.
Cement prices pan-India have declined 5% during July-December against a 7% price rise in the same period last year, largely due to the Competition Commission of India’s (CCI) order on alleged cartelisation in June 2012.

An industry source said most cement companies have a prices decline `25-30 per 50-kg bag in the last 4-5 months.

“The stress on cement prices will continue in the balance part of the current fiscal as well. The category A companies will be hit significantly due to pricing pressure from category B and C companies,” he said.    

Analysts,  however, see an increase in cement majors’ operating profit 25-50% in fiscals 2014 and 2015.




Jump to comments

RELATED