European cement manufacturers with a presence in India are likely to benefit if the Indian government's plans to ramp up infrastructure spending come to fruition in the next 12-18 months, says Moody's Investors Service today in a new report. India's 2016 Union Budget, announced on 29 February, contained plans to hike public infrastructure spending, especially on roads, which could revive stagnant cement demand in the country.
"Planned infrastructure spending will revive sluggish demand in the Indian cement market and could significantly benefit European players in the sector, though any benefits rely on the projects being effectively and timely executed," says Falk Frey, a Moody's Senior Vice President and author of the report.
According to the Indian government's 12th Five Year Plan (2012-17) investment in infrastructure should increase from 7.6% of GDP in 2014 to 9% in 2017. However, cement demand for government-funded projects has been weak in the last four years with many construction schemes delayed or put on hold. As a result, while infrastructure investment will be a key growth driver, the timing of such investment remains uncertain.
As the second-largest cement maker in India, Swiss-based LafargeHolcim (Baa2 stable) is in a good position to benefit from any increase in infrastructure spending. LafargeHolcim is also the best placed European player to benefit from uneven regional demand, with a much larger scale and more prominent operations in northern India, where it sells almost 42% of its local cement volumes.
Conversely, southern-based HeidelbergCement AG (Ba1 Stable), CRH plc (Baa2 Stable) and Italcementi S.p.A. (Ba3 review for upgrade) have limited geographic coverage and are more exposed to local overcapacity in this region.
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