Higher fuel costs will have dented quarterly earnings of India’s leading cement companies, but their outlook remains upbeat thanks to strong demand in a growing economy.
Cement consumption in the world’s largest market after China is forecast to grow at a compound annual growth rate of 7-8 percent over the next few years, as India steps up spending on roads and houses, analysts said.
India’s billion-plus people need some 33 million houses. As incomes grow, analysts say this will keep demand robust in a country where per capita cement consumption, at some 115kg a year, is about half that of China.
A recent move by Swiss-based Holcim to take control of Associated Cement Companies Ltd. (ACC), India’s No. 2 cement maker, has raised hopes of consolidation in the fragmented industry that should benefit producers, they said.
There are more than 55 cement companies in India, including French cement group Lafarge. They run some 365 plants which often engage in fierce price wars for markets.
Fuel and raw material costs make up a third of Indian cement firm’s revenues, and a recent rise in coal and other input prices will have squeezed profit margins, analysts said.
"Cement companies continue to grapple with higher costs," said Abhijeet Dey, an industry analyst with Pioneer Intermediaries.
Prices of coal, used for in-house power generation, climbed about 17-18 per cent in the past three months from a year ago, while cement prices nudged up just 1.5 per cent.
Making matters worse, cement shipments during January-March rose only about six per cent, compared with a 12 per cent growth in the preceding three months, because a cold wave in northern India stalled construction during the normally busy season.