Newer cement firms could induce volatility

Newer cement firms could induce volatility
17/02/2017 , by , in ALLIED

The entry of new cement manufacturers and expansion of regional cement companies into larger markets are likely to increase competition and depress prices, analysts say.

While new entrant Emami Cement Ltd will focus on Chhattisgarh and West Bengal, JSW Cement Ltd has aggressive expansion plans for west and south regions. Meanwhile, Vadraj Cement Ltd, a regional cement maker formerly called ABG Cement Ltd, will enter the western markets of Gujarat and Maharashtra next fiscal. All three could increase competition for larger pan-India companies.

The disruption can induce pricing volatility, especially in the western and eastern markets in the next two years, Religare analysts Navin Sahadeo, Siddharth Vora and Aman Chaplot wrote in a 2 February report.

“With virtually no change expected in pan-India utilisation levels in FY18 (vs. FY17) and only modest improvement in FY19, we see little scope for margin-accretive cement price hikes. We believe the hikes, at best, will be to pass along cost pressures,” the Religare analysts wrote.

The Indian cement industry is estimated to have a capacity of about 420 mt. ACC Ltd, Ambuja Cement Ltd, UltraTech Cement Ltd and Dalmia Cement Ltd command about 40% of this market. The majority of India’s cement output—about 60%—goes into housing, followed by infrastructure and commercial sectors.

“Expansion of regional cement companies to other states will lead to increased volatility. There have been several instances in the past where cement companies have aggressively expanded in new regions and disrupted the pricing in the market,” said a brokerage analyst.

Emami Cement, part of consumer goods major Emami group, in October unveiled its cement brand and said it was looking to scale up its cement production capacity from 4 million tonnes (mt) to 15-20 mt in 3-5 years. The parent has budgeted as much as Rs9,000 crore for the proposed expansion and is also exploring opportunities to buy existing plants.

Rajasthan-based Shree Cement Ltd has stepped into the eastern market which has seen several new entrants, keeping prices depressed for the past year. Shree Cement is also planning to enter Karnataka in fiscal 2019 with a 4 mtpa plant.

JSW Cement, part of $11 billion JSW Group, plans to increase its capacity five-fold from the current 6 mtpa to 30 mtpa by 2020. Last month, the company agreed to buy a controlling stake in Odisha-based Shiva Cement.

About admin

Loading...