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Delayed monsoon, peaked construction activities related to commonwealth games and also the low base of the previous year led to the double digit growth in demand during the last fiscal. However, in FY11, cement demand growth has taken a slight breather. During the first nine months of FY 11, the cement demand grew at 6% on a yoy basis. Construction activities remained subdued during this fiscal on account of the prolonged monsoon, heavy winter, delay in execution of infrastructural projects due to environmental clearance hurdles etc. The capacity utilisation rate of the industry has shown a steep decline to a level of 75% in FY 11 as cement manufacturers have resorted to production cuts on the back of the slowdown in the cement offtake. Lower utilisation rate can also be attributed to the substantial capacity addition witnessed by the industry. In the first ten months of FY 11, the industry has witnessed a capacity addition of about 25.5 mn tonnes. On the regional front, the Southern region took the worst hit in FY 11. Due to notable capacity addition of about 8.4 mn tonnes and subdued demand, the operating rate of the Southern region declined to the level of about 66%. The Eastern region operated well above the industry average on account of the robust demand growth. During FY11, cement prices have remained under pressure owing to the slowdown in the cement offtake and an incremental growth in capacity over demand.( http://www.bharatbook.com/detail.asp?id=40496&rt=Report-on-Indian-Cement-Industry-For-Indian-Customers.html ) In FY11, average cement prices witnessed a decline across regions barring the Eastern region. Considering first ten months of this fiscal, average cement prices have dropped by about 2% on a yoy basis to `251 per bag. Considering the first nine months performance of this fiscal, the cement industry has registered a substantial drop in PBDIT margin to about 19% mainly due to input cost rise and lack of pricing power. During this period, the per tonne power & fuel cost and freight cost have increased by about 21% and 11% on a yoy basis, respectively. Going forward, cement companies will lack pricing power given the supply glut situation in the country. However, the cement industry is in a better position to operate at a lower utilisation rate and avoid substantial price cuts, thanks to the comfortable break-even cushion value (defined as the ratio of overall capacity utilisation rate of the industry to the utilisation rate at the break-even point in a particular year) at two times. CARE Research does not foresee a drop in average realisation of the industry in FY12. However, the per tonne freight cost and power & fuel cost is expected to increase at a CAGR of 8.3% and 12.6%, respectively during the period of FY10-12. As a result, PBDIT margin is expected to remain under pressure and drop to a level of 16% in FY12. CARE Research estimates that the cement demand is expected to grow at a CAGR of 9.8% in the period FY11-14. Going forward, cement demand will largely be driven by the increased focus of the government on the infrastructure development and promotion of low-cost affordable housing in the country. Enterprise Values per tonne of some major domestic cement companies are quoting anywhere from 1 to 2 times the replacement cost. With the fall from peak valuations reached in FY 07-08, many acquisition opportunities are available in the domestic market. Many midsized cement players in the country, which are unable to compete because of rising input costs, constraints in passing on the incremental cost, subdued demand etc. would be eager to sell their assets. However, having seen the deals at extremely higher valuations, none of the cement makers, however small, are willing to sell below US $140-150 per tonne and are demanding a hefty premium over the replacement cost. Domestic cement companies are clearly unwilling to pay such a huge premium. However, foreign players, who are keen about strengthening their foothold in the Indian cement market would continue to hunt for lucrative deals. To know more about kindly visit: http://www.bharatbook.com/detail.asp?id=40496&rt=Report-on-Indian-Cement-Industry-For-Indian-Customers.html Related reports 2011 U.S. Employment Placement Agencies Industry Report China Cement, Lime, & Gypsum Industry Profile - CIC311 -30- Or Contact us at : Bharat Book Bureau Tel: +91 22 27578668/+91 22 27579438 Fax: +91 22 27579131 Email: info@bharatbook.com Website: www.bharatbook.com Follow us on twitter: http://twitter.com/#!/Sandhya3B
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Report on Indian Cement Industry For Indian Customers
