India Ratings and Research expects cement demand growth to remain sluggish at 5-6 per cent next fiscal.

This is due to the slowdown in the construction and infrastructure sectors.

The growth will be supported by an expected increase in demand from the rural sector and tier-II and -III cities.

There could also be some up tick in demand from the second-half of next fiscal due to an investment allowance for infrastructure projects of Rs 100 crore and above announced in the previous Budget.

Also, election results will impact overall growth in construction activities, said the rating agency.

The sluggish demand may hamper cement companies’ attempt to pass on the increase in operational cost. Freight costs went up 17 per cent in the last fiscal due to an increase in rail freight rates and higher diesel prices.

Profit margins The overall capacity addition may moderate as incremental demand will be lower than supply.

The rating agency expects the profit margins of cement companies to fall by 0.5-1 per cent with non-integrated players suffering the most.

The credit profile of non-integrated players may deteriorate due to limited pricing power and rising costs, it said.

The agency expects the slowdown in construction and allied activities to lower the capacity use for next two fiscals to 70-75 per cent from 76 per cent in FY13.

The capacity use in South-based companies may remain at 58 per cent, in the eastern region it will be 80-85 per cent while in the northern, western and central regional it would range between 70 and 80 per cent, it added.

suresh.i@thehindu.co.in

Related Topics
comment COMMENT NOW