Cement sector to grow 3.8-4% in FY16 : ICRA

Given the capacity overhang and a moderate demand growth, the capacity utilisation is likely to decline marginally to 70% in FY16

India's cement demand is likely to improve gradually in the medium term in line with recovery in infrastructure, investment cycle and overall economy, says a report from ICRA.

The results of policy initiatives taken by the new government will take time to materialise. With demand growth showing a sluggish trend during the first half of FY16 ICRA expects the pace of recovery in cement industry to be moderate at 3.8-4.0% during 2015-16.

Given the capacity overhang and a moderate demand growth, the capacity utilisation is likely to decline marginally to 70 per cent in FY16. But it is expected to improve to 73 per cent in FY17 driven by both pick-up in demand as well as slowdown in new capacity addition, adds tehe report.

All India cement production grew by 1.26 per cent in the first half of FY16 compared with 9.73 per cent in the corresponding period of FY15.

Sabyasachi Majumdar, senior vice-president, ICRA Limited, says "The overall growth of 1.26 per cent in H1 FY16 was impacted by continued muted demand from key consuming industries (real estate and infrastructure), slow recovery in infrastructure spending and high base effect (as cement demand had increased by 9.73 per cent in the corresponding period last year). Further, muted growth in the Minimum Support Price (MSP) for crops for FY2015-16 as well as drought conditions affected agricultural incomes and post-monsoon rural demand for cement for housing and other purposes."