Cement Sector: Nothing Much To Expect

The growth of the cement industry is directly linked to the growth of the overall economy. Real Estate and infrastructure sectors in particular drive the growth of this industry to a large extent. The housing sector is so important, that it consumes almost two-thirds of the total cement produced in India. Additionally, capital expenditure by corporate also drives demand for cement. Q3FY14 has not seen any change in the fortunes of the cement industry and the situation has remained as subdued as has remained during the past couple of years. While demand has been one problem, product pricing too remains a concern.

A good monsoon was supposed to perk up demand, but that too hasn’t happened. Hence volumes for all companies are expected to drop compared to the preceding quarter levels. Adding further pain is the pricing levels which have seen a downward correction in the December quarter. Due to lower demand, capacity utilisation has been lower in turn resulting in higher fixed cost per unit of production. The profitability of these companies is expected to be impacted during the December quarter owing to all these factors. Higher energy and transportation costs are likely to dampen their EBITDA margins.

The weak demand resulted in a lower bargaining power and companies have not been in a position to pass on the rising freight charges and energy charges to the end users. With the approaching general elections, social spending and infrastructure development would certainly have happened but the impact of this is not likely to be visible in the December quarter numbers.