Cement sector growth at 10-yr low

Manufacturers fail to match their expectation of 9-10% growth in FY11, end with less than 5%

The Indian cement industry has hit its lowest growth in over a decade. Manufacturers have failed to match their expectation of 9-10 per cent growth in financial year 2010-2011, ending with less than five per cent.

It is the first time since the industry entered its boom time during mid-2005 that cement makers’ high trajectory growth slipped to almost half of what experts had anticipated.

Industry analysts and company officials blame it on persistent poor demand for the building commodity throughout the year. After the Commonwealth Games held in Delhi last October, demand worsened, pulling down production and sales on a year-on-year basis in subsequent months.

According to statistics from the Cement Manufacturers’ Association and companies, the industry saw 4.82 per cent growth in its sales in 2010-11, compared with 10.5 per cent in 2009-10.

Hari Mohan Bangur, chairman and managing director of the northern major, Shree Cements, says, “At the start of the year, we had estimated demand to grow by eight-nine per cent but it did not happen. Going forward, we hope the scenario will improve.”

For the first two months of the year, sales were almost in line, above eight per cent growth. However, as soon as the monsoon set in, the growth kept declining year-on-year, before dipping into negative territory in November and December.

According to analysts, the high base effect coupled up with an extended monsoon and no major infrastructure projects taking off after the CommonWealth Games did not let demand rise. “At the same time, delays in commissioning of newer capacities by four to six months, regional political issues in the south and strikes by transporters in the north impacted sales,” says a research head at a Mumbai-based brokerage house.

ACC, one of the largest producers, remained a laggard for nearly three quarters of the year. Its sister concern, Ambuja Cements, could manage a nominal growth of around five per cent. Aditya Birla Group’s UltraTech Cement saw sales rise by a little over three per cent.

The industry added close to 45 million tonnes of fresh capacity during 2010-11, to take it close to 300 mt per annum. However, since new units take four to six months to stabilise before commissioning to the fullest capacity, these could not add to the volume sales, as of the total, only 260 mt was produceable capacity .