Outlook

Outlook

Cement demand could pick up during FY15E and FY16E driven by the impact of a good monsoon in CY13 if a stable and reform focused government comes to power at the centre.

Currently India´s cement industry is facing a problem of excess supply, with overall capacity at ~370mtpa exceeding the demand by ~110mtpa. The country´s cement demand has been weak over the past few years due to the economic slowdown.

Over FY10-14E, India´s cement demand growth has been modest at five per cent CAGR. However, the capacity addition has remained unabated with ~80 mtpa of capacity being added over the period. This has resulted in excess supply and all India cement utilisation falling to a low of ~70 per cent.

Low capacity utilisation has eroded the pricing power of cement manufacturers who have found it difficult to increase the prices despite the increase in cost pressures. Going ahead, we expect that the cement demand to witness improvement from H2FY15, aided by recovery in overall economy and formation of new central government, which could provide momentum to infrastructure activities. The new government formed will also have an impact on the market performance.

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