India Ratings & Research expects cement demand growth to remain sluggish at around 5% – 6% for FY15, as a result of the slowdown in the construction and infrastructure sectors. Growth will be supported by an expected increase in demand from the rural sector and Tier II and Tier III cities. There remains potential for an increase in demand in 2H15 due to a provision in the Union Budget of 2013 – 2014 for an investment allowance for infrastructure projects of Rs.1000 million and above between 1 April 2014 and 31 March 2015. Furthermore, election results will impact the overall growth in construction activities.
Cement companies do not have the pricing power to pass on cost increases to customers due to the sluggish demand. There was a substantial increase in the overall cost structure in FY13. Median freight costs increased by 17% y/y in FY13 due to an increase in rail freight rates and higher diesel prices.
Outlook
A more stable outlook could result from the formation of a stable government following the general elections, which may lead to higher investment in infrastructure and thereby an improvement in cement demand.
Adapted from press release by Rosalie Starling