Cement capacity utilisation to improve: Jaypee

Enthused by expected increase in cement demand, Jaiprakash Associates today said the capacity utilisation of the industry in general will be around 75-85% in next fiscal with the company on the upper limit.

"The demand for cement is likely to grow by 8-10% next fiscal. Capacity utilisation for the industry,as a whole, will be 75-85%. We expect to utilise 85% of our plant capacity in FY'12," Jaiprakash Associates' Director and CFO Rahul Kumar told PTI.

The Jaypee Group flagship is expected to end the current fiscal with an approximately 80% capacity utilisation against the industry average of around 75%, he said.

Cement consumption is set to clock around 8.5% growth this fiscal.

Jaypee Group currently has 22 million tonnes per annum (mtpa) installed cement producing capacity, which is set to go up to 34 mtpa the end of FY'12.

This includes 4.3 mtpa capacity addition in its joint venture with Steel Authority of India (SAIL) for which.

Jaypee Group has 14 mtpa capacity in Central India, 2.5 mtpa in West, 2 mtpa in East and 3.5 mtpa in North India.

The company is setting up a 3.5 mtpa plant in the South which will be operational next fiscal, Kumar said.

Kumar said the supply-demand imbalance in the country's cement sector is unlikely to have an impact on the company's sales since the overcapacity phenomenon is mainly concentrated in the Southern part of the country.

However, the overcapacity situation in the industry has not bode well with the bottomline of the existing players as almost all major players are continuously recording decline in net profit for the last so many quarters.

And, going by a recent report prepared by rating agency Fitch, a not-so-rosy picture is awaiting the industry in the next fiscal as well.

Fitch had said the continued overcapacity in cement sector would exert further pricing pressure on the commodity in 2011, leading to squeezed margin for the manufacturers.

"We forecast around 10% demand growth and over 12% capacity addition in 2011. The overcapacity is likely to result in pricing and consequently margin pressures for most cement companies," it had said.

India has over 260 mtpa installed capacity now. Cement production capacity was 201.3 mtpa in FY'08 vis-a-vis 167.7 mtpa demand.

Capacity went up to 236.9 mtpa compared to total demand of 181 mtpa in FY'09.

The agency further said that the demand-supply imbalance would reach to its highest level in FY'13 to 125.8 mtpa against industry's installed capacity going up to 392.8 mtpa.