The ambitious expansion plans of cement manufacturers face deferral and some are running behind schedule. About Rs 13,000 crore of projects have been deferred, while no new clinker capacities have been ordered since April.
Kesoram Industries, the BK Birla-promoted company has deferred plans of putting up a 2.5-million tonne (mt) unit at a cost of Rs 1,160 crore, said KC Jain, director. The cement arm of the Dalmia Group, which has annual capacity of nine mt in the southern region, had major plans of adding 10 mtpa in 2008. After the economic turmoil, it hasn’t launched any project or equipment order. The Puneet Dalmia-headed arm had a capex plan of Rs 4,200 crore for this and had also received private equity infusion of Rs 750 crore from global giant Kohlberg Kravis and Roberts.
In 1007, new entrant Reliance Cementation had announced putting up a capacity of 15-20 mtpa, with each unit of five mtpa. It had started initial work on land acquisition in Madhya Pradesh and Maharashtra and wanted to commission the first plant by the second half of 2011-12. Then, it finally signed a letter of intent for its first unit in May this year.
Ravi Sodah, research analyst with Ellara Capital, said: “The cement demand environment was expected to improve from 2012-13, but now the situation does not look favourable and things are going slow. The industry was expected to grow at a compounded annual rate of 10 per cent, whereas for the first two months of this financial year it saw negative growth. Last year, the growth was at five per cent. Cement players are going slow."
Analysts on the Street agree the unfavourable demand-supply situation is forcing companies to delay their expansions. An analyst from an international brokerage who did not wish to be identified said, “The present capacity utilisation levels are not above 70 per cent and if they can't run their existing capacities at full levels, why would they bother to bring in new capacities on time? Most of them are watching the situation and a lot of delays are expected, like JSW Cement and Jaypee Cement.”
One of the big ones which reworked its plans was Grasim Industries. The Aditya Birla Group company had originally planned to put up three cement plans after its merger. Says a source, “After the merger of the group cement companies, the plan was to launch units in Tamil Nadu, Chhattisgarh and Andhra Pradesh. It had floated tenders for these, but later they scrapped Tamil Nadu. Now it is coming up with a combined capacity of 9.2 mt, whereas the original plan was to put up three kilns of 10,000 tonnes per day each, with a total capacity of 10 mt, which means now 4.6 mt would come up in MP rather than the earlier projected three mt, as cement demand is favourable in the central and eastern region.” It is expending Rs 5,600 crore for the new expansion plans.
Jaypee Cement, the Jai Prakash Gaur-promoted cement arm, was slated to add 10 mt this year and take its total capacity to 36.5 mt by the end of 2010-11. Apart from delay on its part, the Union environment ministry has issued a stop notice for its clinker unit in Uttar Pradesh. The Sajjan Jindal promoted JSW Cement, which was to add 5.2 mtpa by 2011, is behind schedule and the project is expected by the end of this year.
