Reort On Cement Industry
Product mix expected to tilt towards OPC...
Indian cement industry had witnessed an implausible growth journey during the period of FY06-10. This was mainly on account of the increased cement offtake from the real estate, infrastructure and industrial construction activities. Increased spending by the government on infrastructure activities coupled with the growth in the real estate sector had led to increased appetite of cement in past few years. The cement industry growth has surpassed the economic growth rate of the country during this period consistently. Cement consumption in the country grew at an average multiplication factor of approximately 1.2 times the GDP growth rate during the period FY 06-10. Cement Industry
In FY11, cement demand grew at moderate rate of 5% on yoy basis. The multiplier of cement demand growth to the GDP growth declined below one. The construction activities remained subdued in FY11 owing to various reasons like prolonged monsoon, heavy winter, delay in execution of infrastructural projects etc. which led to slowdown in cement offtake. The dismal performance of the cement industry continued in FY12. The slowdown in the real estate sector and delay in take off of the various infrastructural projects owing to the spiralling cost of capital has hit the cement consumption in this fiscal. During the first nine months of FY12, the cement demand grew at 5.3% on yoy basis. However, the long term cement demand is expected to remain intact. Increasing focus of GoI on the infrastructure development and promotion of low cost affordable housing in the country will provide impetus to the growth of cement consumption. CARE Research estimates the cement demand to grow at a CAGR of 8.3% during the period FY12-15.
In the period FY08-11, the cement industry registered a double-digit growth in capacity as compared to the moderate growth of 3-7% registered during the period FY03-07. The cement production capacity of India grew at a CAGR of 14.5% from 166.7 mn tonnes at the end of FY07 to 286.4 mn tonnes at the end of FY11. During the same period, the consumption of cement grew at a CAGR of 8.6%. Consequently, the industry’s operating rate has shown a declining trend from a level of 93% in FY07 to 73% in FY11. CARE Research expects the operating rate of the industry to decline to a level of 71% by the end of FY15.
In FY11, the industry had witnessed a steep fall in the margins. The slowdown in the cement demand coupled with the inability of the cement players to pass on the rising cost led to drop in the margins. The profitability margins of the cement industry have shown some improvement in FY12. Considering the first nine months of FY12, the cement industry has witnessed a marginal improvement in the margins despite of the rise in the cost. Despite of the supply glut situation, the industry was able to pass on the increased cost burden to the consumers on the back of the supply discipline followed by the cement players in this fiscal. The PBDIT margin of the industry improved marginally to 21% in FY12. Going forward, with the surplus capacities coming on stream, maintaining the supply discipline is expected to become difficult for the industry. Cement industry will not be able to hike prices in the next fiscal equivalent to the increased cost burden. As a result, CARE Research expects PBDIT margin to remain under pressure.
During the period of FY06-09, the product mix was skewed towards the blended cement on the back of the tight demand and supply situation. The proportion of blended cement in the product mix had increased from 61% in FY 06 to 75% in FY 09. However, post FY09, with substantial capacity addition, a gradual shift was observed in the product mix towards OPC. The proportion of blended cement in the total product mix has declined from 75% in FY09 to 72% in FY11. This shift in product mix by players may be considered as a step towards curtailing excess supply situation prevailing in the industry. This can also be attributable to rising cost of blending raw materials like fly ash.
OPC is used in making concrete for structures that require high compressive strength like infrastructural projects. CARE Research believes this will help the industry to reap the benefits of rising cement demand from infrastructural projects as GoI has been keen on development of infrastructure in the country. Going forward, most of the cement players are expected to switch from blended cement to OPC.
SECTION- I CARE Research’s OUTLOOK
Overall projected Demand-Supply situation
Region-wise projected Demand-Supply situation
Cement demand drivers
Capacity addition & Operating rate
Cost structure & Margins
Valuation & Consolidation
SECTION- II INDUSTRY SECTION
Cement industry witnessed a slowdown in FY11 after an implausible journey…
Industry operating rate continued to fall…
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