Cement sees signs of growth
Cement is one industry that plays a pivotal role in the growth of the nation. The industry is also a significant contributor to government’s revenue collection. After a shortlived decline following the government’s demonetisation drive, the cement sector is seeing early signs of a spurt in demand.
The government is substantially stepping up infrastructure spending. Construction activity is increasing in the country owing to a boost from infrastructure development and the government’s efforts to boost the economy. To note, the government has raised the allocation for the roads sector in the FY17 budget from Rs 57,976 crore in 2016-17 to Rs 64,900 crore in 2017-18, with a stress on laying 2,000 km of coastal roads.
The government’s constant initiatives such as creation of smart cities and housing for all are likely to give the much-needed push to the cement sector. To note, the housing sector is the biggest demand driver for cement, accounting for about 67 per cent of total consumption in India followed by infrastructure at 13 per cent, commercial construction at 11 per cent and industrial construction at 9 per cent. Also, the grant of infrastructure status to affordable housing will support the cement sector.
Higher government spending on infrastructure and housing, and rising per capita income will continue to drive growth for the cement industry. The central government has been continuously making positive moves on the policy front, by ensuring ease of doing business, rationalising tax structure & administration and opening up more areas for foreign investment through the automatic route.
Recently, the Reserve Bank of India allowed banks to invest in Real Estate Investment Trust (REITs) and Infrastructure Investment Trusts (InvITs), which are positive initiatives as they would help revive the stressed infrastructure and realty sectors and revival of these sectors would give direct a boost to cement demand.
The cement industry in India has been attracting several top-notch global players and this indicates that the industry holds huge potential for investment. Also, Indian cement giants such as UltraTech Cement, Birla Corp and Dalmia Bharat have acquired Jaypee Cement, Odisha Cement and Reliance Cement – a subsidiary of Reliance Infrastructure’s (RInfra), respectively. These acquisitions have helped these companies to increase their operation capacities and market shares.
On the demand front, the cement sector is expected to grow at a healthy pace over the next five years, primarily led by increased consumption from the infrastructure segment. Housing with an increase in independent housing projects, particularly in the semi-urban and rural areas, is expected to further boost cement demand.