India: IRCA suggests challenging times for Indian producers

India's cement producers profits are under pressure as raw material and fuel costs rise, and delays in construction projects tighten margins. Ratings Agency IRCA point out that cement prices are also subdued and that these are challenging times for the domestic industry as demand and rates remain under duress.

"The outlook for cement industry continues to remain challenging with both demand and prices continuing to remain under pressure. Domestic production grew by a modest 3.9 per cent during 1H FY14 primarily due to weak demand from end-user industries," ICRA said.

In its latest quarterly update on the cement industry, ICRA said delays in environmental clearances for industrial and infrastructure projects, and sand unavailability in some states contributed to slow growth.

"The demand has continued to remain sluggish during 2Q FY14 due to a slowdown in construction activities during the monsoon season. The impact on construction activities was felt from the beginning of July and both cement demand and prices remained under pressure throughout the second quarter," said Sabyasachi Majumdar, senior vice-president, ICRA.

The pressure on cement prices coupled with rise in raw material, domestic coal and freight cost has put pressure on the profitability of cement firms, he said, adding dispatches on YoY basis remained sluggish in 1QFY14 given the lacklustre demand from end-user industries.

Modest volume growth coupled with pricing pressures resulted in YoY decline in revenues in 1Q FY14 for most of the cement companies and prices came under pressure during second quarter across most parts of the country due to onset of monsoon and consequent slowdown in construction activities.

Going forward, Majumdar said, cement demand and prices were expected to recover. Cement prices have already started firming up across markets from October 2013 and wholesale prices in regions such as Delhi and Chandigarh have almost reached pre-monsoon levels.

"The profitability of cement companies is expected to improve sequentially in line with improved demand and prices. However, the margins will continue to remain under pressure on YoY basis," he said.