Holcim may rethink India expansion

Holcim may rethink India expansion
Published: 18 November 2008

Swiss cement giant Holcim, promoters of India’s top two cement manufacturers — ACC and Ambuja Cements — may review the current capacity expansion projects in the country amid global slowdown and poor pricing situation.

India is one of the growth markets for Holcim in the Asia-Pacific region, which is witnessing a decline in demand for cement. The world’s second largest cement-maker, which saw a dip of 23 per cent in its profits for the September quarter, has decided to shut units in Spain and the US.

For the first nine months of this year, the company’s four major markets recorded a "strongly negative" internal operating EBIDTA growth. The Indian operations were not an exception, with a negative impact of CHF110m (INR452 crore).

In the September quarter presentation, Holcim Chief Executive Officer Markus Akermann said, "We shall adjust our production capacity in line with the demand. The current capacity programmes — focusing on growth markets — will be reviewed, but largely continued." He also said that additional projects will be on hold, with the allocation for projects next year being reduced. The company had outlined projects to increase its capacity to 55Mt in two years.

Holcim has around 41Mt of capacity in the country and controls more than one-fifth of the industry’s overall production capacities in India.

Currently, Ambuja Cements has a capacity of around 18.5Mt, which will increase to 25Mt. Similarly, ACC is embarking on capacity expansion to over 30Mt by 2010 from 22.4Mt.

Recently, Ambuja Cements Managing Director A L Kapur had said that the company would go slow on its proposed 1Mt Bihar unit. In September, ACC MD Sumit Banerjee had said the company was working on a couple of new projects, which were at drawing board stage.

The domestic cement industry is set to add 30Mt in the current financial year taking the overall capacity to 230Mt. However, the demand as anticipated earlier is not keeping pace with the upcoming capacities.

Domestic cement players are expecting demand to grow by 7-8 per cent against the projected 10 per cent growth. The impact is now being felt with capacity utilisation dipping to a four-year low of 82 per cent in the September quarter as against 95 per cent last year.

Industry analysts claim that with fresh capacities coming on stream, cement prices will be under pressure. Paul Hugentobler, member of the executive committee, Holcim, said earlier this year in an interview with Business Standard that there was no escape from price hike at least by US$20-30/t.

However, government pressure did not let the price rise, rather the rates have been cut in some parts of the country. Akermann added that there is less room for manoeuvre in adjusting prices in India.