Cement sector sees demand recovering with Budget push

The infrastructure vertical comprises 17% of total annual cement demand

Cement companies are bullish about demand on account of the government’s focus on infrastructure and housing in the Union Budget. Finance Minister Arun Jaitley has raised the allocation for roads from Rs 57,976 crore in 2016-17 to Rs 64,900 crore in 2017-18, with a stress on laying 2,000 km of coastal roads.

Industry executives said cement comprised 30 per cent of the cost of laying a road and the budgetary allocation would translate into a Rs 19,470 crore opportunity for the sector. “I am bullish about the budgetary allocation and expect growth,” said HM Bangur, managing director, Shree Cement.

For the transportation sector as a whole, Rs 2,41,387 crore has been allotted for 2017-18. “Cement is a prerequisite for any construction and the government’s focus on infrastructure will lead to increased demand for cement,” Bangur added.

The infrastructure vertical comprises 17 per cent of total annual cement demand. Another vertical likely to boost cement offtake is housing, which contributes 45 per cent to the cement industry’s annual sales.

“With the proposal to build 10 million houses by 2019 under the PM Awaas Yojana, and raising the allocation from Rs 15,000 crore to Rs 23,000 crore, we expect a boom in demand,” said Amandeep, director and CEO at OCL India and Dalmia Cement East.

According to broking firm Prabhudas Lilladher, the cement industry stands to gain from the grant of infrastructure status to affordable housing. “We expect interest rate sensitive sectors like banking, automobiles, cement, construction and consumer goods to outperform in view of the boost the Budget has provided,” said Ajay Bodke, chief executive officer, Prabhudas Lilladher.

According to Centrum Broking, cement demand recovered partly in December in the north and west while it continued to slide in the east. The central and southern regions exhibited mixed trends. “Weak demand coupled with the year-end selling pressure led to a 2 per cent month-on-month average pan-India price decline,” it said.

An earlier report by Deutsche Bank Markets Research on the cement industry had factored in a 15-20 per cent demand drop till December and a 3 per cent growth in January-March.