Despite the Indian cement sector facing a number of challenges last year, Credit Suisse forecasts improvements in consumption going forward with higher growth rates expected from the next fiscal.
The domestic market saw mixed results in calendar year 2012, with the first half proving encouraging but a slowdown in the second part of the year fell short of analysts expectations. While the initial months of 2013 have failed to bring any real cheer to the sector, analysts at Credit Suisse sees growth in demand of around seven per cent in the next fiscal, although it says the demand drivers may change.
“With strong growth expected in rural housing, roads and railways, we expect cement demand growth to improve from five per cent in FY13 to seven per cent in FY14,” Credit Suisse said. It expects the recovery to be driven by growth in rural housing and pick-up in roads and railways investment, it added.
“Housing constitutes two-thirds of Indian cement demand, with rural housing accounting for 40 per cent of the total. We expect cement demand from housing to grow at an eight per cent CAGR, with the bulk of growth coming from rural India,” it said.
Cement demand from rural India would grow on the Central and State Government schemes and individuals upgrading houses to ‘pucca’ houses with their own resources.
“Government spending on Indira Awas Yojna was weak in FY’13, where only 80 per cent of the budget was spent as the allocation increase per household from Rs 45,000 to Rs 70,000 was applicable from April 1, 2014. Therefore, we expect FY’14 demand to be strong,” Credit Suisse said.
Roads and railways are still growing in double-digits, the report said, adding that demand growth from irrigation and power remains muted.
“Therefore, with the expectation of seven per cent demand growth, we build in an accretive price increase and margin recovery in FY’14,” the report said.