ICRA expects cement demand to improve gradually in the medium term in line with recovery in infrastructure, investment cycle and overall economy. The presence of a stable pro-growth government at the Centre has improved the sentiment, but the results of policy initiatives taken by the new government will take time to materialize.

While ICRA expects demand to grow by 6.8-7% during FY16, the pace of recovery in cement industry is likely to mirror the trends in economic recovery. Given the capacity overhang, the capacity utilization is likely to remain moderate at 72% in FY16; but it is expected to improve to 77% in FY17 driven by both pick-up in demand as well as slowdown in new capacity addition. All-India cement production grew by 5.6% in FY15 as compared to 3.0% in FY14.

Cement demand has remained sluggish post monsoon with all-India cement production increasing by merely 1.8% during Oct-Mar 2015 as against 9.7% during Apr-Sept 2014. While pre-election spending and delayed monsoon had supported the growth in cement demand in H1 FY15, the growth slowed down in H2 FY15 once the election cycle was over. The demand has continued to remain subdued in Q1 FY16 with cement production growing by merely 0.1% during Apr-May 2015.

Sabyasachi Majumdar, senior vice-president, ICRA said, ''Cement demand was also impacted by cut down in government spending in Q4 FY15, muted demand from real estate and construction projects and slow recovery in infrastructure spending. Further, decline in kharif crops production owing to poor monsoons affected agricultural incomes and post-monsoon rural demand for cement for housing and other purposes. Regional factors such as extension of monsoon in South, extremely cold weather in North India and unseasonal rains in North in Q4 FY15 also affected construction activities and consequently cement demand in some areas. The situation persists in Q1FY16, with demand remaining subdued during Apr-May2015.''