The cement industry was in focus in both government stimulus packages announced so far. But early analysis of the impact shows that the sector is still woefully short of good news. The reason is quite simple: the key to the revival of the cement sector lies in the revival of the real estate sector, and funding continues to be a big problem in the real estate and infrastructure sectors.
While announcing its Q3 results, UltraTech had said that there is a slowdown in construction activities and corporate capital investments, which is leading to a slackening in the demand for cement. The sector is now expected to track the growth in GDP, estimates of which are being lowered regularly. Until now, cement consumption has grown by 6.8% year on year compared to the growth rate of 9.8% in the corresponding period last year. Obviously, this slowdown in cement demand is linked to the overall slowdown of the Indian economy and its housing sector, which accounts for about 65% cement consumption in the country.
Going ahead, deceleration in the growth of cement consumption and additional capacities anticipated by several players will put further pressure on cement prices, and they are expected to drop by 20-25%. Meanwhile, the across-the-board cut in excise duty announced by the government in December 2008 has already resulted in the major players cutting prices by Rs4-6 per 50 kg bag of cement.
As for government stimuli, first, excise duty on cement has been lowered from 12% to 8%. Second, there is the removal of the export ban on cement, which will also have some impact, with the government having allowed exports from the Gujarat ports on May 27, 2008. It is from here that 85-90% of India?s cement exports take place. Sure, it cannot be ruled out that without the stimulus package provided by the government, cement consumption growth could have been even lower. But because the package hasn?t reinforced confidence amongst the investors and buyers, it is expected to merely cushion the falling demand instead of boosting it.
smita.joshi@expressindia.com