Home >Industry >Manufacturing >Cement firms lead pvt sector’s capex plans

MUMBAI : Despite the pressure of overcapacity and rising input costs, cement firms are leading the private sector’s capital expenditure plans, prompting analysts to re-rate the industry. Industry experts see brisk demand for cement next fiscal year, backed by affordable housing and government expenditure on infrastructure.

Recently, UltraTech Cement, an Aditya Birla Group company, said it was investing 5,477 crore to expand its capacity by 12.8 million tonnes per annum by FY23, its largest investment programme ever.

The JSW group, too, said it will pump in over 1,500 crore in its subsidiary Shiva Cement to upgrade its clinker unit in Odisha, while Ambuja Cements and ACC, which are part of LafargeHolcim Group, are expected to spend 780 crore to set up six waste heat recovery systems.

However, India Cements’ plans to invest 1,300 crore to set up a new plant in Madhya Pradesh may be delayed till a full economic recovery from covid-19, the company’s management has indicated.

During the December quarter, cement demand grew 6-8% from a year ago, led by pick-up in infrastructure spends, rising non-trade sales, and strong rural demand in eastern and northern markets. Average capacity utilization for the industry rose to 80% against 78% a year ago. During Q3, demand for cement grew 6-7% from a year ago, compared to 5% growth in the preceding quarter.

With construction activities stalling in the first quarter of 2020-21 because of covid-related lockdowns, demand for cement had fallen off a cliff. In an effort to recover, cement companies shortened their debtor cycles and improved cash flow management. “Among the measures, the first was to adopt the cash-and-carry model, saying we will not sell our cement on credit," N. Srinivasan, vice-chairman and managing director, India Cements said at a press conference earlier this week. “We said we will fix a certain price and refuse any order below that price. We were not bothered what other people (cement manufacturers) did. Our volumes came down a little, but profitability was sustained, so was the business."

The Union budget is expected to help boost demand for the cement sector. “Demand from rural markets was the major driver for cement in the current fiscal year," Sabyasachi Majumdar, senior vice president and group head, Icra, said. “In the budget, the government is expected to remain focused on the rural economy and is likely to make significant budgetary allocation for the agriculture sector, besides increasing allocations towards rural employment, housing and infrastructure development. These expected measures in the budget would boost cement demand."

Stock analysts said input costs are expected to go up by 3-4% in the March quarter sequentially, led by rising fuel prices, and fly ash and slag prices, which will lead to higher cement prices. However, demand is expected to remain robust.

“Cement demand continues to accelerate led by robust retail demand and rising non-trade sales," an 11 January report by HDFC Securities said. “We continue to be bullish on the regional pricing outlook for north and central regions owing to robust regional utilization, high regional consolidation and low influx of new players."

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