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Telangana Andhra Pradesh hold hope for Southern Cement Sector

2015-11-17 Posted By:InfraBazaar

The Southern Cement sector is the country’s third largest company with a capacity of about 136 million tones. Of the country’s total capacity of 422 million tones currently only 55% is in operation due to a sharp slowdown in the market.

As per analysts, after more than five years soft growth, the south Indian capacity surplus BSE 0.49% cement industry can soon hope for significant demand recovery thanks for improving the construction activities in the two Telugu speaking states Telangana and Andhra Pradesh. The newly proposed green field capital city construction at Amaravati and mega irrigation project at Polavaram in Andhra Pradesh and revival in irrigation projects, newly planned road projects and housing for deprived sections in Telangana could turn into a demand pickup for cement by at least 10-20% as they predict.

Further to the slowdown, the region also saw a sharp rush in capacity additions, nearly half of the India’s new capacities of around 100 million tons were added during 2009- 2014 due to the great quantity of limestone availability in the southern market.

Over the past 5-6 years there has been less demand and the capacity of usage plummeted sharply with most of the south Indian cement companies. Even then they could manage to maintain healthy financials thanks to continued price discipline.

The Telangana government is planning to convert at least 400 km of BT roads into cement roads in Hyderabad and expanding them into various parts of the state, currently negotiating with the cement manufactures for bulk supplies at relatively discounted prices. The greater Hyderabad Municipal Corporation, B Janardhan Reddy said the corporation would soon float tenders for cement roads.

Initially they will spend municipal funds on these initiatives and may look to tie up with private firms through public-private-partnership (PPP) model for laying cement roads. The marketing director of Vicat group that sells cement under Bharati brand is of the view that cement roads could significantly boost the demand for cement in the region.

This is an opportunity to supply large quantities of cement at fairly discounted prices will be win-win situation for both government and the cement firms. This individually could help the demand for cement going up by at least 10%.

NA Viswanathan, the secretary general of the lobby body Cement Manufactures Association (CMA) says, if Andhra Pradesh government also adopts cement roads for its proposed Greenfield capital at Amaravati, we can see additional spurt in demand revival, attracting the attention of other states. Predict the better prospects for the cement firms in the south, analysts of ICICI has provided the report and explained the demand may revive from the second half of the current fiscal year and the capacity utilisations in the region could grow over a period to improve up to 65% from 55%.

Krupal Maniar Jayant Dongre and Kushal Churi analyst experts said that Telangana government is likely to spend more on low costing housing and the Seema Andhra government is likely to spend more on roads, construction, irrigation and infrastructure for the new capital Amravati from Q3FY16.