Indian cement recovery under pressure in 2014

Indian cement recovery under pressure in 2014
Published: 31 December 2013

Tagged Under: India Volumes 

Indian cement sales in 2014 are expected to remain under pressure on the back of slower government spending as fiscal deficit concerns mount, and a slow recovery in the capital expenditure cycle by private firms, according to a report by Mint (India). At the same time, higher costs may continue to weigh on the profitability of cement makers in the coming year.

Analysts expect cement sales growth to improve only marginally to 6.5% next year compared to 4-5% in the current fiscal year, the report said. Furthermore, cement demand may not pick up ahead of the general election in May. Pre-election infrastructure spend is constrained due to government fiscal caution, while uncertainty about the new government is also making companies defer investment plans.

Prices are also struggling to recover, and are expected to remain soft in the first half of next year, due to the slow recovery and excess capacity in the industry. Average capacity utilisation levels are expected to drop from a decade low of around 70% in FY13 to 68% in FY15 due to capacity additions.

India’s domestic capacity is expected to rise to around 375Mt next fiscal year from 350Mt this year, according to Barclays Research.

The all-India average cement price for FY14 is estimated to remain nearly flat year-on-year versus an estimated increase of 1.5% in the current year.

It is feared that unless demand improves and companies can exhibit pricing power, earnings downgrades will put pressure on stock prices next year.