India Ratings & Research has revised its cement sector outlook for FY16 to "stable", from "stable to negative" a year ago, on expectations that demand growth at 8 per cent would outpace supply additions at 6.7 per cent in FY16.
Cement capacity utilisation which was around 71 per cent in FY14 is likely to improve to 73 per cent to 75 per cent in FY16, the ratings agency said in its report.
The southern region, with a significant over-supply, is likely to maintain a supply discipline during FY14- FY16 with a capacity addition of just 7 mtpa over this period. This is expected to improve cement capacity utilisation in this region to 61- 63 per cent in FY16 from 56 per cent in FY14.
The central regions of the country, will likely add 5 mtpa during FY14-FY16 and consequently improve capacity utilisation to around 85 per cent from the current level of 81 per cent. Similarly, the capacity utilisation in regions of northern India, is likely to increase to 80-81 per cent in FY16 from 78 per cent in FY14 as the region adds 13 mtpa.
Ind-Ra expects capacity utilisation of cement companies to improve across all regions barring eastern India. The companies in the east are adding around 17 mtpa against 31 per cent of its existing installed capacity during FY14-FY16, and thus supply growth in this region is likely to outpace demand growth and reduce capacity utilisation in the region to around 70-71 per cent from 75 per cent in FY14.
The companies in the western region are adding 10 mtpa (18 per cent of the existing capacity) during FY14-FY16, and thus, the capacity utilisation in this region is expected to remain stable at the current level of 73 per cent, Ind-Ra said.
