Cement sector may see revival from 2nd quarter of FY16

According to a brokerage firm, increased govt spending is expected to stimulate private spending which has been under severe pressure for the past couple of years

India's cement demand continued to remain tepid in March 2015, but it is expected to see revival from the July-September quarter of current fiscal on the back of steep increase in allocations to infrastructure spending.

"The weakness in the cement demand has been so severe during March that cement companies have been compelled to cut their despatches by 20-30 per cent even in the Northern region which has been one of the most stable regions," brokerage firm PL India said in a report.

The report said that the weakness in demand was abnormal, influenced primarily by government's reduced spending to manage the fiscal deficit.

"We expect a gradual revival in demand to start from Q2 FY16 on the back of steep increase in allocations to infrastructure spending as announced in the recent Union budget. Increased government spending is expected to stimulate private spending which has been under severe pressure for the past couple of years," PL India Analyst Kamlesh Bagmar said.

The report said that average cement prices remained flat in Northern India market on quarter on quarter (QoQ) basis.

Average price in Maharashtra rose by Rs 15 per bag QoQ due to a steep hike of Rs30 per bag in prices of Pune, partially off-set by lower hike of Rs 20/bag and Rs 5 per bag in prices of Mumbai and rest of the state, respectively.

Gujarat prices remained flat due to weak prices in adjoining states in the Northern region despite better demand.

In the Central India market, prices in Uttar Pradesh and Bihar (key market for MP-based producers) fell due to weak secondary sales and infra sector.

In the Southern market, after witnessing a dip in prices in the previous quarter, producers resorted to a tight discipline during the quarter. Hence, average prices in Tamil Nadu, Bangalore, Hyderabad and Kerala rose by Rs 50, Rs 30, Rs 35, Rs 45 per bag QoQ.

The Eastern region's demand was impacted due to contraction in industrial activities across the resource rich states of the region and poor public spending.

The report said that the current weakness is in-line with expectation, however, positive outlook remains intact.

"This drives us to maintain our overweight outlook on the sector on the back of better demand outlook, slowing pace of addition and exit of weak players," the report said.