A pick-up in sales volumes buoyed by higher prices saw major cement companies post steady sales in the quarter ended June 2014. The industry was languishing for the last few years and industry watchers feel there are now signs of a recovery.
“The economic slowdown in the last few years and the virtual standstill in new infrastructure projects took a toll on the sector. However, with improvement in the overall sentiment and the government’s thrust on infrastructure and housing, there is likely to be an improvement in the sector’s fortunes,” said Rajesh K. Ravi, sector analyst at Karvy Stock Broking.
The sector is still grappling with higher costs. In a statement, cement major ACC said its manufacturing and distribution costs continued to face escalation.
Imported coal prices are stable and higher costs are from fuel and freight.
Analysts point to better prices during the quarter — average of Rs.306 per 50 kg bag against Rs.301 in the preceding quarter and a recovery in South India where prices increased by 10 per cent, as a positive. The delayed monsoon allowed extended construction and so offtake has been better.
“The quarter showed some positive signs and there are ‘green shoots’ of a recovery in the sector,” said Jinesh Gandhi, cement analyst at Motilal Oswal Securities.
On the infrastructure projects front, execution is expected to gain momentum in the second-half of 2014-15 and that could boost sales.
India is the second-largest cement producer globally with significant capacity having come in the last five years. It is working at 70-73 per cent utilisation, a 25-year low. Analysts expect this to go up to 75 per cent average soon although it would be some years before it reaches 80 per cent pre-slowdown levels.
The fragmented industry is expected to consolidate. “Addition of new capacity has been delayed and recent acquisitions have happened at about $120 per tonne against the benchmark $150-160 levels,” Mr. Ravi said, adding that players would look to exit if their balance-sheets continued to bleed or due to working capital constraints.
