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Cement despatches: Healthy demand

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Vishal Chhabria Mumbai

With new capacities, prices are likely to come under pressure, leading to lower profitability for companies.

For November 2009, cumulative despatches of nine cement companies, which control about 55 per cent of the market, were up 11 per cent year-on-year. While demand from government-sponsored infrastructure projects as well as rural and semi-rural regions were some positives, shortage of railway wagons and monsoons in certain markets weighed negatively on despatches. The trend in despatches at the company level, thus, showed a mixed trend.

The Aditya Birla group, comprising Grasim and UltraTech Cement, reported a 15.3 per cent rise in despatches at 2.93 million tonnes (MT), supported by capacity addition of 4.1 MT in the current fiscal. The group also gained from its relatively larger exposure to north and western markets, where demand was better. With the group’s annual cement capacity expected to rise 3.1 MT to almost 49 MT by end-December 2009, it should be able to sustain double-digit volume growth. North India’s largest cement player, Shree Cement also reported a good 15.3 per cent rise in cement despatches on the back of better demand in the region.

 

On the other hand, ACC and Ambuja Cements reported lower-than-industry growth in despatches for November. Ambuja’s despatches were higher by 4.7 per cent, while ACC’s fell by 4 per cent compared with a year earlier. Analysts said ACC’s despatches were partly impacted by shortage of railway wagons as the government gave priority to transport of food grains and fertilisers. In a recent report, Credit Suisse says the lower-than-industry volume growth for the duo is possibly due to the strategy of trying to protect realisations; feedback from dealers suggests the companies are maintaining their premium pricing. Some other key players like the Aditya Birla group (on an annualised basis, its November despatches translate into a capacity utilisation of just 77 per cent) have also been slow in ramping up production, indicating their desire to manage the over-supply problem, says the analyst.

Meanwhile, cement prices, which had fallen sharply in the last 3-4 months, have surprisingly moved up Rs 5-15 per 50 kg bag in the last few days in certain markets due to a combination of issues like supply shortages and a pick-up in demand. But, given the planned capacity additions and the projected annual growth of 8-10 per cent in demand, it is unlikely that prices will stay high for too long. Thus, analysts maintain a cautious outlook on the cement sector, especially for south-based players, and expect profitability of companies to come under pressure, with the larger impact likely to be felt in the next fiscal.

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First Published: Dec 05 2009 | 12:29 AM IST

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