Come winter, cement demand will pick up
Aug 21 2014 , Mumbai
Like all other sectors, cement companies were also reeling under stress as their margins eroded, with demand declining significantly across the country. But demand is expected to pick up from October-December across the country.
K C Birla, chief financial officer, UltraTech Cement told Financial Chronicle, “With government’s focus on infrastructure and overall economic growth of the country, cement sector is also expected to perform better in the second half of this financial year. We expect demand to start reviving post monsoon once the infrastructure projects start to get executed.”
Initiatives taken by the government are widely expected to pay off in the second half of FY15is fiscal year.
Vinod Juneja, managing director, Binani Cement, said that there is likely to be shortage of cement by March-end in the country as infrastructure activities are expected to pick up full-fledged.
The sector has witnessed significant decline in demand in the last couple of years and margins came under pressure as companies failed to pass on increase in input costs like coal and gypsum, key ingredients of making cement and other transportation costs to customers.
Vinita Singhania, managing director, JK Lakshmi Cement, said that demand remained under pressure for the last several quarters and the sector witnessed meagre growth of around 3 per cent in 2013-14.
Singhania said that the sector is likely to witness strong demand from the second half this year.
Ambuja Cement managing director and chief executive officer Ajay Kapur said post results that the company expects construction activity to pick up pace despite challenging macro-economic conditions, considering favourable announcements in the Union budget for infrastructure and housing sectors.
The company continues to work on improving efficiencies and focus on customers and commercial excellence, Kapur said.
Analysts too believe that the sector is on the path of revival. Once the monsoon season is over, they expect cement demand to grow around 7-8 per cent this financial year from a year ago on the back of renewed government focus on housing and infrastructure.
Rajesh Kumar Ravi, an analyst at Karvy Stockbroking, said demand was expected to pick up after the monsoon season, mainly on the back of execution of infrastructure projects and a revival in construction activities.
Cement prices declined by around Rs 10-15 per bag in August as the monsoon continued in the country, stalling construction activities, resulting in lower demand. Prices are expected to pick up post monsoon, Ravi said.
Ravi Sodah, an analyst at Elara Capital, said, “In the April-June quarter most of the cement companies reported drop in profit due to lower realisation.”
However, profits of cement companies are expected to improve post monsoon as prices are expected to go up on back of improved demand. The average cost of a 50 kg bag of cement is around Rs 300 across the country.