UltraTech Cement to increase capacity by 10 MTPA

UltraTech Cement, India’s largest cement making company, has planned to further increase its capacity by 10MTPA in the next 3 years taking the total capacity to 62 MTPA. The company will spend Rs 11000 cr in the next 3 years and has placed orders for major equipment, expected to be operational by Q1FY14.

The capacity expansion will be funded through a mix of internal accruals and borrowings. So far the company has has spent over Rs 1,100 cr on various capex initiatives in the first half of the current fiscal.

The management has also stated that "Over the long-term, the sector is likely to grow over 8% on the back of government's focus on infrastructure development and housing. Further, the enhanced capital allocation towards infrastructure in the 12th Five-Year Plan will give the desired push to the sector,".

However to better understand the long term demand supply scenario, we at DSIJ went a step ahead and did our analysis with assumptions based on the management’s outlook. With 8% growth in demand, the capacity will remain a concern as total consumption will increase from 223 mn tonne to 281 mn tonne in 2015 and will outpace the supply at 78% utilization to 276 mn tonne. 

Therefore given the scenario and based on the assumptions, we believe the 10 MTPA capacity will benefit the company in the long term and will be a necessity to meet the growing demand.

The company has said that surplus capacity in the domestic market will most likely continue to exist for the next 2-3 years, but the growing input costs will squeeze margins. It is also expected that 20 Mt of capacity will be added during this fiscal year, taking the total capacity to 310 Mt/year.