Indian cement companies have at least two good years ahead with capacity lagging demand as the country steps up spending on infrastructure, a fund manager said on Monday.
"Plants are running at almost 100 percent capacity. Some supply may come only towards end of next year and that too could actually be postponed to 2009, resulting in firm cement prices," Prateek Agrawal, head-equities, ABN AMRO Asset Management (India) Ltd., told Reuters.
India’s annual cement capacity now stands at 158 million tonnes, second only to China, and is expected to rise by 40 million tonnes in the next two years.
In the April-June quarter, the country is estimated to have consumed 34.3 million tonnes of cement, 12.7 percent higher than a year earlier.
"Given the kind of demand and supply we are looking at, cement companies have at least two very good years ahead of them," said Agrawal, who had cement among the top five sectors of the four equity funds managed by him.
Of ABN AMRO’s 10.31-billion-rupee assets spread across five equity funds at end-August, nearly a tenth was invested in India Cements Ltd., Gujarat Ambuja Cements Ltd. and Grasim Industries Ltd.
"We have seen demand for cement sustaining at around 10 percent levels," he said, adding that given the size of demand, even a one percent rise could change equations.
In April-June major Indian cement companies reported their best quarterly performance in five years on the back of a construction boom that resulted in enormous demand for cement.
Grasim Industries saw net profit rising 24 percent for the quarter ending June, while that of Associated Cement Companies Ltd. trebled. Both companies beat expectations.
Agrawal also said easing crude oil prices would result in lower transportation cost and may also bring down coal prices, one of the major inputs for the cement industry.
"All of a sudden, everything seems to be in place. During rains, when you expect the sector to underperform, it actually showed quite a bit of performance. We are now getting out of rainy season and if things go as expected, this sector should do quite well," he said.