Cement sector under pressure

Cement sector under pressure

With ACC and Ambuja Cements reporting a dip in sales volume, the Indian cement industry seems to be reeling under pressure. Companies are continuously losing pricing power, while costs continue to rise. Manufacturers are already selling cement at a five-year low price. Although ups and downs were part of the business cycle, the current dips are more than the usual fluctuations. Shailendra Chouksey, Whole-Time Director of JK Lakshmi Cement, said, "If economic growth remains poor, cement industry cannot grow." The industry is now looking at an upsurge in growth in the second half of FY14, as it is an election year.

The targets set by the working group on cement industry seem too be unachievable. According to the Five-Year Plan for 2012-17, industry will have a capacity of close to 470 million tonne per annum (mtpa) by 2017. India, with an overall capacity of 360 mtpa, is the world's second largest cement manufacturer, with China coming second. The target requires an addition of ten per cent per year from here. Based on current demand indications, cement companies do not foresee any significant improvement in the cement market in the near term. A decline in profitability and net sales has been affecting the sector from the last 12 quarters. One-fourth of the overall capacities is sitting unutilised as the demand has dipped drastically.

The sector witnessed expansions doubling the capacity from 180 mtpa to current levels in a short span of five years (2007-12), the fastest in sector's history. The expansions, however, were not matched by the actual consumption on ground. "When those targets were made, people had not anticipated the current slowdown," says Chouksey. The country's current cement consumption stands around 260 million tonne. Expansion from here on will be a challenge and will happen at a rather slow pace. Regulatory process too will slow down the growth. It takes at least five years for land acquisition and then two more years to erect the plant, in all, seven years for an efficient player compared with 3 years earlier.

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