India: cement industry to grow above 9% next year, consolidation in sight

India: cement industry to grow above 9% next year, consolidation in sight
Published: 21 November 2011

A steep rise in cement prices have led to a hike in construction costs for builders. Cement companies have increased prices by INR00/bag in the last three months. In an interview to NDTV Profit, VM Mohan, CFO, India Cements, talks about the company’s future plans and cement prices in southern India.

NDTV: Despite a rise in prices in south India, the volumes for your company have been declining. So could you give us guidance for volumes for the coming years?

Mohan: We have improved our volume by 5% QoQ. We are likely to have a flat growth for this year. Last year, we did about 9.9Mt in India Cements. So this year, we are likely to end up with 9.9Mt as well.

We have a subsidiary in Rajasthan, which has gone on-stream in the beginning of this calendar year, which will be producing close to 1Mta. We are likely to have an addition of 7-8% in cement sales during the current year.

We will certainly be in-line with the growth in the industry for the next year. We believe in the next year, the industry will grow at a faster pace. Traditionally with 3-5 years, moving average of cement growth is about 8-9% Considering the last two years, we have not bending well from the demand growth side, but it may possibly go up in the next year. Hence, we are likely to see 9-10% growth in the next year which the company is also likely to experience.

NDTV: What about the price outlook in South India as prices have increased by over 20 per cent in the last 3 months? What has the demand been like after the monsoons?

Mohan: Demand has not been increasing and we are still facing the negative growth that we faced through the last year for the first 6 months. The negative growth is still 4% in the South region,  lead by Aandhra Pradesh, which is having a negative growth of close to 17%, even Tamil Nadu and Kerala markets are really flat.

Karnataka is just going at 2%, so over all we are seeing negative growth of about 4% in the south. We will have to wait and see how the third quarter pans out and how the demand picks up post monsoon since the monsoon quarter for Tamil Nadu is the main market.

Traditionally, in the second half of the year, national demand for cement normally grows faster in the first 6 months, so we will have to wait and see if that happens in this year as well. We believe that we may end up the year with a flat growth as against a negative growth of 4%.

NDTV: Corporates like Jaypee, Jindal have plants coming up in the south, do you expect any impact on prices once their capacity commences in these plants?

Mohan: The actual effect of this new capacity will only come into play possibly in the next year, because the new capacity has to stabilise and it will take a while for them to stabilise.

At this juncture, we don’t know how these players will play out in the markets. As of now, the players are behaving in a mature fashion, so the prices have been fairly steady in the last  year, despite couple of monsoons. I don’t see any reason why another 5-7% capacity will impact these prices. But actually, we will have to wait and see.