'Cement demand growth will pick up to 6 per cent in 2016-17 and further to 7 per cent in 2017-18...' ICRA said.
Demand for cement is likely to grow by 6 per cent in the current fiscal and further rise to 7 per cent in 2017-18, on improvement in infrastructure segment, says a report.
According to rating agency ICRA, cement demand was relatively muted at 5 per cent in 2015-16.
“Cement demand growth will pick up to 6 per cent in 2016-17 and further to 7 per cent in 2017-18… during the current fiscal, it is likely to be driven by the pick-up in the infrastructure segment – primarily road projects and housing segment,” ICRA Ratings Senior Vice President Sabyasachi Majumdar said.
“This apart, there is a likelihood of recovery in rural demand from the second half of the current fiscal given the expectations of a better monsoon,” Majumdar added.
ICRA also noted that cement demand would also be supported by the construction of a new capital for Andhra Pradesh and the focus on irrigation and water grid schemes by Telangana.
However, it noted that a number of structural constraints needed to be sorted out for project implementation to gather pace in the other infrastructure sub-segments.
“With the pace of new capacity addition slowing down, we expect capacity utilisation and supply-demand scenario to show an improvement, especially in 2017-18, which should support cement prices and profitability indicators for cement manufacturers,” Majumdar said.
He added that improvement in capacity utilisation in the north, west and east is likely to support the cement prices in these regions in the near term.
Further, it observed that amendment to ‘Mines and Minerals (Development and Regulation)’ is likely to support consolidation and aid the stalled merger and acquisition (M&A) deals in the cement sector.
The amendment allows for the transfer of mining leases, granted through procedures other than auction, where the minerals are used for captive purposes.
“The companies acquiring cement units will now have raw material security with the access to limestone mines of their acquisition targets,” ICRA said.
“In cases where companies have mortgaged these licences, the lenders will be able to transfer it to a potential buyer, which will help creditors recover some of their dues,” it added.