Future Outlook for Cement Sector, strong

Date:   Tuesday , September 01, 2009

The cement sector is gearing up for a fast track growth and the next few years will see the sector zooming past new milestones. The production of cement is expected to cross 400 million tonnes in the next 10 years, with leading players focusing on capacity expansions two to three times their present capacity. At the same time, the demand for cement is increasing at 8-10 percent and, if this trend continues, players can easily increase their capacities from 21 crore tonnes (210 million tonnes) to 50-60 crore tonnes (500-600 million tonnes) per year.

This sector will drastically change with stand-alone bags giving way to ready mix concrete (RMC). The form of this RMC will be tailor made concrete customized to suit various infrastructure needs. Ready mix concrete is still a relatively nascent market in India. However, it is slowly but steadily gaining ground and will be the most sought after product in this sector. The greatest advantage of RMC is that it is economical, stronger, and environment friendly. Moreover, no large storage of cement bags is required and hence there will be no wastage.

Currently, 55-60 percent of cement produced in India is consumed by the housing sector. This is expected to change in the next few years when the emphasis will be on infrastructure developments like roads, bridges, and railways, which will consume a significant percentage of cement produced in the country. The consumption of cement in agriculture is negligible today; but with a greater thrust on agriculture and the suggested ‘second green revolution’, this sector too will extensively use cement to build warehouses and other logistics.

The eastern states of India along with the border states will be the newer and virgin markets for cement companies and will contribute to their bottomline in future. In the next 10 years, India will become the main exporter of clinker and gray cement to the Middle East, Africa, and other developing nations of the world. Cement plants near the ports, for instance the plants in Gujarat and Visakhapatnam, will have an added advantage for exports and will logistically be well armed to face stiff competition from cement plants in the interior of the country.

A large number of foreign players are also expected to enter the cement sector in the next 10 years, owing to the profit margins, constant demand, and right valuation. Consolidation of the cement sector too will take place and cement plants producing less than 1 million tonnes will find it difficult to survive in this market. Cement companies will go for global listings either through the FCCB route or the GDR route.

With help from the government in terms of friendlier laws, lower taxation, and more infrastructure spending, the sector will grow and will take India’s economy forward along with it.

The author of the article is Vinod Juneja, Managing Director, Braj Binani Group