Cement firms increasingly opting for brownfield expansion
Faster turnaround time, lower capital expenditure and better returns on capital employed are some advantages that are driving cement companies towards brownfield expansion
Indian cement makers are increasingly opting for brownfield expansion over the greenfield route.
Cement demand is anticipated to improve in the coming quarters led by a pickup in affordable and rural housing, and infrastructure-related projects. An easier and cheaper way to capture that demand for companies is via a brownfield expansion.
Faster turnaround time, lower capital expenditure and better returns on capital employed are some advantages that are driving cement companies towards brownfield expansion.
The cement industry saw 62% of capacity addition through the greenfield route over fiscal years 2015-2018, said a 25 June report by domestic brokerage house Spark Capital Ltd.
However, now most companies have resorted to expanding through the brownfield channel in their existing areas or expanding clinker at existing locations and commissioning grinding unit in the end market, it added.
A slew of companies including Shree Cements Ltd, Sagar Cements Ltd, Ramco Cements Ltd and JK Lakshmi Cement Ltd have undertaken brownfield expansion.
As Chart 1 shows, almost 46% of new capacities planned over the next four years are though the brownfield route. And considering the number of brownfield expansions announced in the last one year, the sector’s supply estimates have changed significantly (see Chart 2).
However, a key concern for cement makers currently is lack of pricing power. Unless demand revives significantly, incremental supply in any form—greenfield or brownfield—would mean a further delay in overall price improvement.
Editor's Picks »
- Huawei CFO gets bail, Trump says he may intervene in US case against Chinese executive
- RBI governor Shaktikanta Das faces long to-do list in new job
- Bond yield falls 11 bps as new RBI chief seen more dovish on rates
- Huawei executive gets bail in case rattling China ties
- Britain halts suspension of visa programme for rich investors
- Escorts: Japanese joint venture to hone growth in tractors
- HCL Tech’s acquisition of IBM products raises more questions than answers
- Investors ignore NMDC’s price cuts, and worry about its Donimalai iron ore mine instead
- Steel stocks get winter chill as China demand issues resurface
- Why Uday Kotak’s defiance is scaring his bank’s investors