The 210-million tonne Indian cement industry fears shrinking of margins after all the capacity additions come on stream by 2010. The Indian cement industry is expected to increase capacity by around 115 mtpa at an outlay of approximately Rs 50,000 crore by 2010.

The cement consumption is also expected to grow by that time. However, the industry is more concerned about the margins getting impacted, apart from over supply of the commodity.

Says Vinod Juneja, MD of Binani Cement Ltd, ?The threat is the shrinking of margins. The average profit margin at present is 23%, which is expected to reduce to 15% after all capacities come on stream. The profit is expected to reduce by Rs 200 to 300 per tonne of cement.?

Similarly, AL Kapur, MD of Ambuja Cement Ltd, had earlier told FE, ?The situation will be pathetic as there will be so much of surplus. But we will survive. However, we got to have a cost of production, which is much different from others. Productivity and efficiency are going to be the hallmark. And we are going to ensure that we produce cement at the lowest cost so that even if the margins are affected, there is a fair amount of neutralisation by way of our productivity,? he adds.

India is the second largest producer of cement in the world after China. The demand-supply position in India has improved over the years with growth in demand outstripping growth in the creation of capacity. According to a Mumbai-based analyst, 2010 is still far off. However 2009 (calendar year) will surely be tough for cement manufacturers. Margins will definitely be impacted as this will be the offshoot of oversupply of the commodity in the market. Even if the companies get 15% margins, it is still good. Companies with low debts will be in a better position in such a scenario.

Kumar Mangalam Birla, chairman of UltraTech Cement Ltd, in the company?s eighth AGM held in July this year had said, ?The new capacities may coincide with slower economic growth and lead to a surplus scenario from CY09, with consequent impact on margins.?

Enam Research, in its latest report has said that government pressure could ease towards the second half, once inflation concerns ease. Cement prices could see an upswing in the second half as tightness continues in FY09.

Despite a weak 8% GDP growth forecast for FY10, capacity utilization could be 89% (much better than the historic average). In such a scenario, FY10 EBITDA per ton could continue to remain flat.