The ambitious expansion plans of cement manufacturers face deferral and some are running behind schedule. About INR13bn (US$293.2m) of projects have been deferred, while no new clinker capacities have been ordered since April.
Kesoram Industries, the BK Birla-promoted company, has deferred plans of putting up a 2.5Mta unit at a cost of INR11.6bn (US$261.7m), said director KC Jain. The cement arm of the Dalmia Group, which has a capacity of 9Mta in the southern region, had major plans of adding 10Mta in 2008. After the economic turmoil, it hasn’t launched any project or equipment order. The Puneet Dalmia-headed arm had a capex plan of INR42bn (US$947.5m) for this and had also received private equity infusion of INR7.5bn (US$169.2m) from global giant Kohlberg Kravis and Roberts.
In 2007, new entrant Reliance Cementation had announced putting up a capacity of 15-20Mta, with each unit of 5Mta. It had started initial work on land acquisition in Madhya Pradesh and Maharashtra and wanted to commission the first plant by the second half of FY2011-12. Then, it finally signed a letter of intent for its first unit in May this year.
Ravi Sodah, research analyst with Ellara Capital, said: “The cement demand environment was expected to improve from 2012-13, but now the situation does not look favourable and things are going slow. The industry was expected to grow at a compounded annual rate of 10 per cent, whereas for the first two months of this financial year it saw negative growth. Last year, the growth was at five per cent. Cement players are going slow."
Other analysts agree the unfavourable demand-supply situation is forcing companies to delay their expansions. An analyst from an international brokerage who did not wish to be identified said: “The present capacity utilisation levels are not above 70 per cent and if they can’t run their existing capacities at full levels, why would they bother to bring in new capacities on time? Most of them are watching the situation and a lot of delays are expected, like JSW Cement and Jaypee Cement.”
One of the big ones which reworked its plans was Grasim Industries. The Aditya Birla Group company had originally planned to put up three cement plans after its merger. Says a source, “After the merger of the group cement companies, the plan was to launch units in Tamil Nadu, Chhattisgarh and Andhra Pradesh. It had floated tenders for these, but later they scrapped Tamil Nadu. Now it is coming up with a combined capacity of 9.2Mt whereas the original plan was to put up three kilns of 10,000tpd each, with a total capacity of 10Mt, which means now 4.6Mt would come up in Madhya Pradesh rather than the earlier projected 3Mt, as cement demand is favourable in the central and eastern region.” It is expending INR5.6bn (US$126.3m) for the new expansion plans.
Jaypee Cement, the Jai Prakash Gaur-promoted cement arm, was slated to add 10Mta this year and take its total capacity to 36.5Mta by the end of 2010-11. Apart from delay on its part, the environment ministry has issued a stop notice for its clinker unit in Uttar Pradesh. The Sajjan Jindal promoted JSW Cement, which was to add 5.2Mta by 2011, is behind schedule and the project is expected by the end of this year.