A review of the government’s flagship scheme, Pradhan Mantri Awaas Yojana, or Housing for All, shows mixed results. In fiscal year 2019, while the progress in rural India was fairly good, construction of homes in urban regions continued to lag.
Houses completed under the PMAY urban scheme stood at 1.9 million at the end of the March quarter, rising sharply from 1.26 million at the end of the December quarter, analysts at Antique Stock Broking Ltd said in a report on 1 April. Despite that, the government has been able to achieve just about 75% of the target.
Over the past three months, nearly 7.5 million houses have been completed under the PMAY. This seems impressive and should benefit central- and eastern-focused cement producers such as UltraTech Cement Ltd and Shree Cement Ltd.
But it is not enough to move the needle on overall cement demand in India. According to analysts, there are various estimates of incremental cement demand arising from this scheme. But even if one considers that the scheme has achieved more than 80% success, it won’t be sufficient to absorb the large supply that is available.
Secondly, housing demand—apart from the constructions under the PMAY scheme—remains subdued. Concerns over stress in rural India and a potential consumption slowdown could act as dampeners.
With a contribution of more than 60%, the housing sector is among the key drivers of overall cement demand. This is followed by infrastructure and commercial property.
“As per DIPP data, industry volumes increased by 11% year-on-year to 30 million tonnes in January 2019—we note that strong volume growth was despite a high base. Management narratives indicate strong demand from the infrastructure sector even though demand from the trade segment is relatively subdued," Kotak Institutional Equities said in a report on 27 March. DIPP is now department for promotion of industry and internal trade.
In short, given the inadequate demand growth, cement industry’s capacity utilization levels are unlikely to improve from the current 70% levels. As such, cement prices and profitability may remain under check.