INDIA - Consolidation in industry to support cement prices


Updated Fri, 08 Apr 2016 16:47:09 GMT

Consolidation in the cement industry over the last couple of years, along with big-ticket government spending, is likely to hold up cement prices while pushing up demand.

Merger/acquisition deals like JP Associates Ltd-UltraTech Cement Ltd and Birla Corp. Ltd-Reliance Infrastructure Ltd will rationalise ownership to support cement prices.

Meanwhile, with government projects gaining traction in areas like state metros, highways, low-cost housing and dedicated freight corridors, besides irrigation and water supply, demand and consequently cement despatches are likely to improve from the fourth quarter of FY2016 and continue in quarters to come. A bonus could come from good monsoons that can release the pent-up demand in rural areas due to drought in the last two years. A Religare Capital Markets Ltd report forecasts 7-8% year-on-year growth between FY16 and FY18.

This apart, a slowdown in capacity addition in the last few years will translate into better capacity utilisation. Not to forget that the international price of coal, which accounts for a quarter of the total cost of producing cement, is down. This will percolate down to aid operating profit per tonne.

Shares of cement firms have been volatile, thanks to erratic cement price movements and consumption patterns in the last six months. As these clouds of uncertainty clear up, there will be more investor interest in cement stocks.