Credit crunch slows India expansion plans

Credit crunch slows India expansion plans
Published: 01 July 2008

Costlier raw material and tight credit conditions have slowed down Indian cement companies’ ambitious Rs50,000 crore expansion plan to add 80-90 million tonnes capacity in three years.

Adverse economic factors and problems in land acquisition have made expansion almost impossible, industry officials told ET. Some of them said they will be happy if even half of the proposed expansion goes through.

Holcim executive committee member Paul Hugentobler told ET that “not many companies who had announced expansion plans two years ago are on schedule.” A Holcim team dispatched to photograph sites of some new projects reported last week that there is little progress on the ground.

“The equity market is dead and the debt market is not in a good shape, making fund-raising a huge task,” said Mr Hugentobler. Yet, according to Mr Hugentobler, this would not hurt Holcim much.

“We have three strong balance-sheets to bank on,” he said, referring to the financial strength of ACC, Ambuja Cements and parent Holcim, “which is not the case with many others.” Expansion plans of ACC and Ambuja Cement may be a little delayed, he said, indicating that won’t be a cause for major concern.

This was corroborated by an analyst with a domestic brokerage. He said ACC’s expansion plans at Bargarh, New Wadi and Chanda are slightly behind schedule. These will add 7.2Mt of capacity, taking total capacity to 29.6Mt.

According to the Cement Manufacturers’ Association, last year saw capacity addition of 27Mt, taking the total to 170Mt. The demand is estimated at around 200Mt and is expected to grow at 8-10%. Some doubt the trend will continue.

“2007-08 was a golden year due to large government spending. High commercial activity and the housing boom due to higher per capita income kept cement offtake growth in double digits,” said an analyst.

Daljeet S Kohli, head of research, Emkay Global Financial Services said that margins are facing rising pressure. “The sales growth rate fell sharply with a drastic cut in house construction as the real estate industry is under pressure.”