Cement set for big growth in FY22 on infra, realty revival

Our Bureau Mumbai | Updated on March 11, 2021

Demand seen coming back in South and West

The higher infrastructure spending by the government, an upturn in housing construction, and an overall improvement in macro conditions are expected to drive cement volumes in the next fiscal to their highest in 10 years. While this has enthused cement companies to ramp up capacities, there are concerns around rising input costs that can squeeze margins.

Deepak Khetrapal, Managing Director, Orient Cement, said the demand in southern and western regions, which were the most affected during Covid, should grow 20 per cent in FY22 while the all-India average would be about 15 per cent. The demand for ordinary portland cement has picked up in last two months as infrastructure companies rushed to complete projects before the financial year-end, he said.

Also read: Cement capacity utilisation falls to new low at 52% in Q1

Crisil sees cement volume growth hitting 13 per cent in 2021-22, while analysts at Morgan Stanley project it in the 10-15 per cent range over the next two years. This assumes significance because cement volume growth has been at 6-11 per cent between FY15 and FY18. In FY19, the industry saw 12.5 per cent volume growth before the Covid-19 pandemic hit, bringing growth to under 1 per cent.

“We see macro conditions supporting strong cement demand growth over the next few years... supported by both pickup in the capex cycle and upturn in the housing industry,” said analysts at Morgan Stanley.

To leverage growth, top cement companies have announced one of the largest investments in recent times to enhance capacity and improve operational efficiencies. While Aditya Birla’s UltraTech Cement announced an investment of ₹5,477 crore to expand capacity, Ambuja Cement and ACC, of the Lafarge-Holcim Group, will pump in ₹780 crore to set up six waste heat recovery systems. Shiva Cement, a subsidiary of JSW Cement, is investing over ₹1,500 crore in a 1.36-mt clinker unit in Odisha.

But Crisil flagged rising prices of diesel, petcoke or coal, and polypropylene bags pushing up costs by ₹150-200 per tonne. Isha Chaudhary, Director, Crisil Research, said, “Operating profits could moderate by ₹200-250 per tonne next fiscal due to higher cost and lower net realisation, after touching a 7-year high of over ₹1,200 per tonne this fiscal.”


Also read: Cement demand improves, volumes begin to bounce back

Published on March 11, 2021

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