Challenges ahead for cement industry
India’s promising infrastructure development and burgeoning construction activity continues to drive the cement sector.
During April-November 2007, the capacity utilisation increased to 94 per cent from 90.4 per cent during the same period last year.
The double-digit growth in demand during the last couple of years is likely to continue, thereby leading to a significant surge in cement prices, with margins expected in excess of Rs 1,000 per tonne.
However, a recent 10 per cent hike in coal prices and higher power costs have forced cement companies to increase the prices by Rs 3-5 per bag.
However, planned capacity additions (over 125 million tonnes over the next 3-4 years) may adversely affect the demand-supply balance, whereas supply constraints from machinery suppliers or project delays would turn out to be beneficial for the industry.
Despite this, foreign cement players see India as an important destination with Holcim increasing its stake in Ambuja Cement and Cimpor Cementos (54 per cent) acquiring Shree Digvijay Cement for $100 million (Rs 400 crore).
Corporate Impact
| | “The Budget is more or less neutral for the cement sector. The focus for the players going forward will be to build capacities and look for ways to control energy costs”
— D.D. Rathi |
Gujarat Ambuja: No significant impact and it largely appears to be neutral for the company. The challenge going forward will be in creating additional capacities and facing global competition
- ACC: The growth story is likely to continue and the company could see opportunities in increased allocations for projects like the National Highway Development Programme
- Ultratech Cement: The challenge will lie in sustaining the growth story in the long term. The focus will be on the NHDP and the road projects in the North-east
- India Cements: While the impact is neutral, the company will now have to ready itself to take part in the infrastructure game and try and get a share of that
- Madras Cements: The challenge will lie in protecting itself against price fluctuations and managing to remain competitive
Sectoral Impact
- The industry will benefit from a higher demand due to 27.15 per cent increase in allocation for Bharat Nirman at Rs 31,280 crore and due to the total outlay of Rs 12,966 crore under the National Highway Development Programme
- Revision in excise duty rate on bulk cement from Rs 400 per metric tonne to 14 per cent ad valorem or Rs 400 per metric tonne, whichever is higher, and increase in excise duty rate on cement clinker from Rs 350 per metric tonne to Rs 450 per metric tonne, whichever is higher, will result in higher cement prices
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