The cement sector, which has seen a phenomenal growth in demand in the past two years, is facing a supply-side constraint.
To meet the growing demand, companies have announced huge capacity additions. Kumar Mangalam Birla, the chairman of Ultratech Cement Ltd, at the recently held AGM of the company, had said that the sector will be adding up to 75 mtpa by 2010.
A capacity addition of this magnitude will entail an investment of Rs 26,250 crore from cement companies.
"Cement plants are capital intensive and require an investment of over Rs 3,500/t of cement, which translates into an investment of Rs 350 crore for a 1Mta plant," says an Icra sectoral analysis report on the Indian cement industry for the month of July.
A capacity addition of this magnitude will entail an investment of Rs 26,250 crore from cement companies Grasim and Jaypee group have lined up both brownfield and greenfield expansion plans Analysts feel that though companies have announced huge capacity additions, not all of them will come up on time due to its capital intensive nature.
"As some of the proposed expansion projects have yet to achieve a financial closure, we believe the entire incremental capacity is unlikely to come on stream as per schedule. We estimate that at least 8.5Mt of the proposed cement capacities are unlikely to come up on time," says a recently released report by ShareKhan titled Cement producers on a capex binge.’
Of all the capacity expansion plans, the major ones were announced by the Aditya Birla Group-owned Grasim, which will add another 8Mta over the next two years and the Jaypee group which will be increasing its capacity to 15 mtpa from 6.5Mta. The companies have lined up both brownfield and greenfield expansion plans.