Cement makers working close to full capacity

Cement makers working close to full capacity
Published: 16 August 2005

After almost a decade of overcapacity, Indian cement manufacturers are now witnessing full capacity utilisation at their manufacturing facilities, thanks to the booming Indian economy. Some of the major cement manufacturing companies have reported more than 90 per cent capacity utilisation for the first quarter of the fiscal. Gujarat Ambuja Cements Ltd, for instance, has reported a 106 per cent capacity utilisation in the first quarter of 2005-06. Chennai-based India Cements Ltd, which was in the red for the past three years, showed a turnaround in the first quarter with a 71% growth in net profit and 91 per cent capacity utilisation.

"All these years, the supply was ahead of the demand. Only now we see a balance in parity," said N Srinivasan, managing director, India Cements Ltd and president, Cement Manufacturers Association (CMA). Despite predictions of a shortage of supply by the end of the fiscal due to rising demand, none of the big companies have announced plans for capacity additions.

"Only now are companies slowly recovering from overcapacity. It would take some time before they look at expanding capacity," Mr Srinivasan asserted. From March 2003, there has been no major addition in capacity by any company and the next addition is expected to happen only in 2006. It would also take time before the industry achieves demand-supply balance across the country, according to DD Rathi, chief financial officer, Grasim Industries Ltd. "There are still some pockets in the country where there is overcapacity, like in the west and south. The demand-supply balance would begin in the north and then move towards east, west and finally the south. Complete balance in demand-supply in all zones will be achieved only in 2006," he opines. However, there are a few concerns for the industry. Spiralling fuel prices and the resulting increase in freight charges is one of them. However, with the increasing activity in the infrastructure sector, analysts predict a 7.5-8 per cent growth for the Indian cement industry in 2005-06.