Cement firms forecast demand to grow 6-8% in fiscal 2017
country’s top three cement producers—Ultratech Cement Ltd, ACC Ltd and Ambuja Cements Ltd—are expecting a revival in cement demand during the current financial year.
The companies, who have finished reporting their fourth quarter earnings, project a 6-8% growth in cement demand this fiscal year, compared to about 3% in the previous year.
These forecasts are grounded on expectations of improved demand from infrastructure and housing projects backed by the government.
“A significant component of infrastructure demand is driving growth. Pay commission disbursements would happen (and that) will also trigger housing growth. Roads, hydel projects, metro projects, and low income housing projects in the infrastructure segment are doing good,” said Atul Daga, chief financial officer, Ultratech Cement. The company estimates cement demand will grow at 7-8% in the current financial year.
LafargeHolcim-controlled ACC and Ambuja Cements have similar expectations.
On 13 April, Harish Badami, chief executive officer and managing director of ACC told shareholders at the company’s annual general meeting (AGM) that demand growth is projected to touch 6% in calendar year 2016 compared to 2% in 2015. Badami’s optimism is based on major advancements in infrastructure, connectivity, housing and sanitation.
“It’s not unreasonable to foresee cement demand enjoying a compounded growth rate of 6-7% over the next five years,” added N.S. Sekhsaria, chairman for Ambuja Cements Ltd, in a letter to shareholders in the company’s 2015 annual report.
Early signs of a pickup in demand have been visible in the March-quarter earnings.
O n Monday, U ltratech Cement, the country’s largest cement producer reported a 15% rise in its cement sales volumes for the March quarter. Analysts are hopeful that this is an industry-wide trend. According to an April report by Motilal Oswal Securities Ltd, cement volume growth will average 9-9.5% for the January-March 2016 quarter.
With the rise in demand, certain regional markets like North India have also seen an increase in cement prices, according to two Delhi-based cement dealers. However, pan India average cement prices remained lower at ` 290 per bag for the March quarter compared to ` 294 in the previous quarter due to a slump in the South and East markets, said the Motilal Oswal report.
Not everyone is convinced that the pickup in demand is here to stay. Some say the increased demand is largely seasonal.
“Expecting demand growth over 6% would be aggressive. The demand uptick seen in the January-march period is more seasonal and not a trend yet,” said Amey Joshi, associate director (corporate) at India Ratings and Research, the local unit of Fitch Group Inc.
The last and first quarter of a financial year are typically considered the best quarters for the cement sector due to increased construction activity seen before the onset of monsoons.
India Ratings estimates demand growth in the range of 4-6%, according to its 2016-17 outlook report released on 1 February. The demand forecast builds in “slightly better demand from the construction and infrastructure segments led by government spending,” said the report while adding that it does not expect any significant revival in housing demand in either rural or urban areas.
An official with a smaller cement company expressed similar scepticism. “I would not call it a trend or a turnaround yet because housing demand still remains weak and infrastructure is yet to pick up in a big way,” said the official who spoke on condition of anonymity.