Economy & Market
Domestic cement cycle is at a trough; should improve hereon: IIFL
IIFL reports that the domestic cement cycle is at a trough; from here on all key industry metrics should improve, particularly for players in the eastern, northern and western regions. Their report states, "We estimate capacity utilisation levels in these three regions to rise to 85-93 per cent by FY14 (up 6-8 per cent from current levels), aiding the return of pricing power. Incremental demand will likely outpace fresh capacity additions, driven by a mean reversion in demand growth and a slowdown in new supply. Capacity utilisation - bottoming out: In contrast to the FY08-11 period when capacity additions outpaced incremental demand by 120 per cent, we believe that during FY11-14, incremental demand will rise faster than new supply. India's cement demand has historically grown at 1.2x real GDP growth. Over the past two years, cement demand has grown at just 6 per cent YoY and a likely reversion to mean will drive a pick-up in growth rates. Incremental capacity addition in the next three years, compared with FY08-11, will almost halve to 54 m tonne. We expect utilisation levels to bottom out in the current quarter and gradually but sustainably improve from here on."