The cement industry has recorded the highest-ever rise in dispatches in January 2010 and

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its prices have been hiked by about Rs 8 to Rs 10 per bag in the aftermath of the excise duty levied after the union budget, industry leaders say.

According to a Morgan Stanley report, volumes for January 2010 grew at 13 per cent YoY and at 18.2 million tonne recorded the highest-ever monthly volumes in history. This is likely to have some impact on dispatches.

Shree Cement managing director HM Bangur says it is factually correct to say that January 2010 recorded the highest-ever growth in dispatches. “Even though it is the truth, there may be nothing unusual about it. Generally speaking, March every year records the highest as it is stock closing time,” he told Financial Chronicle.

Along with the dispatches, has come the news of the imposition of excise duty, a natural corollory, where the withdrawal of stimulus will lead to that rise in prices being passed on to consumers.

According to Morgan Stanley, the most important of this post-budget development is that growth will be moderated to 6 per cent or 17 million tonne. This, they say, has been driven, partially, on account of a high base. In addition, the compounded annual growth rate (Cagr) for February month over the last three years is estimated at 9 per cent and is in line with the growth trend for the industry.

It says recent discussions with dealers and companies continue to indicate that demand momentum on the ground is strong and is likely to remain so over the next few months, with pick-up in overall demand across key categories. Going forward, they expect YoY comparisons will be challenging, given the high base.

More confirmation of this has come from the Cement Manufacturers' Association of India, whose president Vinita Singhania is also managing director of JK Lakshmi Cement. She told Financial Chronicle that “Indian economy has been working on a drive on infrastructure development. The working group of the cement industry had assessed the requirement of additional capacity to the extent of 100 million tonnes during the five-year-plan ending 2012. The industry had pro-actively taken measures to establish the required capacity with an investment of Rs 50,000 crore. It is a matter of great satisfaction for the industry that the newly-setup capacities are now stabalising and the month-on-month increase in dispatches is reflecting the same.”

Says Mihir Jhaveri, analyst Religare Capital Markets, the introduction of a cess of Rs 50 per tonne for both domestic as well as imported coal is expected to be marginally negative as it will further increase costs for all cement players. The volume growth of six per cent YoY is expected to touch about 17 million tonnes. The Morgan Stanley report says that a price hike of Rs 10-12 per bag post budget (higher than effective increase in excise), implies the pricing power of companies.