After witnessing all-time low demand and profitability in FY14, the domestic cement industry has shown some recovery in FY 15. The growth in cement production picked up to 7.9% in 9M FY15 as against 3.7% in the corresponding period last year and 3% in FY14.
The growth was driven by base effect as well as weak and delayed monsoon which extended the window for continuation of construction activities. While cement production declined by 8% QoQ in Q2 FY14 due to arrival of monsoons, it reported a healthy growth rate of 9.8% YoY again mainly due to base effect, said ICRA Research.
The growth in cement demand slowed down in Oct 2014 due to extension of monsoons in South and labour availability issues due to festive season.
Further, cement companies undertook substantial price hikes in Oct 2014 and demand could not sustain at these price levels; all-India cement production declined by 1% YoY in Oct 2014. While cement demand picked up in Nov 2014, the growth in production remained muted at 4.5% in Q3 FY15.
Going forward, the overall demand prospects are likely to remain favourable on the back of expectations of recovery in economy, particularly infrastructure and private sector spending, following a stable growth-oriented government at the centre.
"Going forward, we expect cement companies in East and South India to report higher profitability on YoY basis in Q3 FY15 due to healthy realizations in the region during the quarter and easing of cost side pressures following decline in international coal prices and domestic diesel prices," it added.
While companies in North and West will also benefit from decline in diesel prices, these gains may be offset by pressure on cement realizations, it opined.