The State of the Industry
There has not been any such good news for the cement industry for quite a while. The recent past has not been so heartening at all, with demand growth ( at -1 per cent) hitting a decadal low in 2016-17, and even the first quarter of the FY18 not showing any positive signs whatsoever. Data released by the Ministry of Industry and Commerce reveals that cement output dipped in June 2017 by 5.8 per cent, over June 2016. This followed a dip in the month of May as well. Cement industry has been hit hard by the consecutive knocks of demonetization, real estate slowdown, and finally the GST complications. All of this makes for a rather gloomy picture, particularly when the industry is chronically suffering from a capacity overhang in most regions of the country.
In this background, how do we then reconcile that large cement companies are reporting better financial results, and the stock markets are gung-ho with buy recommendations on cement players ? It would appear that many cement companies have been able to improve their margins, if not volumes, through a combination of holding (or even improving) price lines and cutting costs. A few cement manufacturers, who have commissioned new capacities, have even been able to show modest volume growths, understandably at the cost of smaller players. And, the stock markets are acknowledging these wonderful cost cutting and price holding capabilities of the industry going forward, besides recognizing the additional cement consumption potential of the Government's infra push in the areas of housing, urban infrastructure, and highways. May be, we are still somehow able to repose our faith in the later half of the year, so much so, that we reckon the demand growth projections of 7 per cent for the year made by some analysts, to be still achievable, in spite of the setback in the first quarter. Regardless, the industry will need three years of 7 per cent growth on the trot, to be able to square up the demand-supply mismatch, and to restart the investment cycle. That's something to really look forward to.
That brings me to the point of promoting cement applications. I have always maintained that the cement industry can do much more in accelerating cement demand by advocating actively for things like concrete roads, concrete canal linings, conversion of 'kutcha' rural homes to 'pucca' ones, and many other such incremental uses of cement. We do hope the industry pushes this kind of an agenda, and we from the Indian Cement review will work in this direction in the coming months and years, to facilitate and focus on such an advocacy strategy for promoting newer opportunities for cement consumption.
Our noble Minister has so very kindly given us a good start, by saying that he would guarantee that the concrete roads will last for 200 years- a bit over the top, but nothing could perhaps be a better promotion of cement in today's context.