It is our job to monitor the cement market and to try to decode the signals emanating from the environment in order to project an outlook for consumption growth. Cement Industry always looks forward to a healthy growth of demand, which would enable the industry to grow, and at the end of the day, who doesn't love a little bit of growth?
While talking about the market, in November (when we had statistics available till August 2017) we said 'Overall, it does appear that real recovery will elude the sector in FY18, and that the next year holds out better prospects of a revival.
Already, some industry-watchers have revised growth estimates from 6-7 per cent to 3-4 per cent, for the current year, and this writer believes even this lesser growth would not be achieved'. We also added for good measure, that September to November were traditionally the best three months for cement industry, and even if a seasonal demand pull is seen during this period, to my mind, it will not prove anything regarding... a sustained turnaround. This then is the setting of the context of the current analysis in February, when we now have government's official data till December 2017.
First, a little bit of overall business context. An important, data-driven report has been released recently by CARE, entitled 'Investment Climate Feb 2018' datelined 20 February, 2018. The report has painstakingly analysed indicators such as gross fixed capital formation in the economy, investment intentions in the country based on industrial investment proposals, growth in capital goods production based on indications from the IIP numbers, trade data signals on both the exports and imports front for capital goods/engineering, corporate debt market activity of public issues and private placements, and growth in bank credit across various components that point towards investment.
An example of the various data analysed in this report, is CMIE's data on investments in projects. During this period the value of investments in new projects announced was less than half of last year. The value of projects completed (which would have commenced before 2017) was also lower at Rs 2.8 trillion (Rs 4.8 trillion last year). However, the projects dropped increased by 23 per cent while those revived were lower. On the other hand, growth of Gross Fixed Capital Formation in FY18 has now been pegged at 26.4 per cent against 27.1 per cent last year, and 34.3 per cent in FY12. Hence, the CARE report comes to the conclusion that overall investment climate does not appear to be positive so far this year, and reversal of these trends may take another couple of quarters.
We can now take a look at the cement numbers. Going by the government's numbers, and post our scrutiny on the basis of Aug numbers, cement grew by 0.1 per cent in September, declined by (2.7) per cent in October, grew by a whopping 17 per cent in November, followed by another growth of 19 per cent in December, helped along by the low-base effect of demonetisation in the same months last year. Even with all this, the April-December period growth is 2.7 per cent, and we may be looking at a below 3 per cent growth for the year FY18. Feedbacks taken from cement dealers by a reputed broking house, has revealed that barring the eastern region, price increase efforts by the cement players have not sustained anywhere else, even though input prices and logistics costs are increasing. The dealers say that the concerns around sand availability, sluggish housing sector, weak real estate sector, etc., remain, and cloud the current outlook.
To quote from Mint, 'Low base due to demonetisation helped cement sales volume growth to look better in December quarter, and increased infrastructure spending by the govt also helped, but it is a quarter or two early to call this a demand revival.' In the absence of any marked improvements in capacity utilisations or prices, we must be careful not to celebrate too early.
Chairman, Editorial Advisory Board