Indian cement companies continue to be looked at darkly by the stock market, with shares getting pounded for months now. The question is, is the pounding deserved?
From what research houses and their analysts have been saying lately, the situation isn’t as bad as is being made out, because India could very well remain a cement-deficit nation up until June 2009.
That’s the message Deutsche Bank gets following a meeting with select cement players and distributors.
In a report, the bank said the supply problem may aggravate in the medium-term as existing capacities find it difficult to maintain utilisation levels.
On fresh capacity addition, it said about 60-62Mt would come up between January 2007 and December 2009.
Of this, incremental output would be only 4-5Mt in 2007, 8-10Mt 2008 and about 20-25Mt in 2009.
So, unless cement demand growth falls to less than 6-7% - a very unlikely scenario considering the infrastructure growth imperatives - India should remain in cement deficit till June 2009, says the report.
Demand for cement is expected to grow at 10-12% annually (or about 16 to 18Mta), which, if holds true, should ensure that the pricing environment too remains healthy.
Also, there is a section of analysts that believe that new capacity addition could be slower than anticipated, due to constraints with respect to supply of cement manufacturing equipment.
In another note post a meeting with India Cements, domestic brokerage SSKI said the company management expects supply to lag demand at least till March 2009 driven by delay in new supplies by 6-12 months (due to delay in equipment supply & regulatory approval) and limited blending potential (due to limited availability of fly-ash for new capacities).
Additionally and on the positive side, the current industry growth is not a fair reflection of actual cement demand, as there is unmet demand due to supply constraints, SSKI said.