CEMENT INDUSTRY

The Indian cement industry recorded a moderate growth in dispatches at approximately 6% on a y-o-y basis in FY12. The slowdown in the real estate sector and delay in the take off of the various infrastructural projects owing to the spiraling cost of capital hit the cement consumption in the last fiscal. Considering the first nine months of FY13, cement production has registered a growth of approximately 6.1% on a y-o-y basis. Long-term cement demand in the country is expected to remain intact. The increasing focus of the Government on the infrastructure development and promotion of low cost affordable housing in the country will provide impetus to the growth of cement consumption. Average cement prices increased by approximately 10% from Rs.253 per bag in FY11 to Rs.278 per bag in FY12. Considering the first nine months of FY13, the average cement prices have increased by approximately 15% on a y-o-y basis to Rs.331 per bag. The cement industry has been grappling with cost pressure in FY13 due to rise in the raw material cost, freight charges, etc. However, the industry has managed to pass on the higher input cost through a series of price hike in past few months.

PROPOSALS UNDER BUDGET: Additional interest deduction of up to Rs. 0.1 million on housing loan to provide fillip to housing demand. Enhancement in provisions under Rural Housing Fund to ensure better flow of institutional credit for housing loans. Several measures proposed for improving funding of infrastructure projectsencouragement to Infrastructure Debt Funds (IDFs), tax-free infrastructure bonds, credit enhancement by India Infrastructure Finance Corporation (IIFCL), setting up of regulatory authority to address the problems faced by road projects, planned award of 300 km highway projects and extension of 80IA benefits for power projects by one year.

IMPACT-MARGINALLY POSITIVE

Increase in long term funding availability for infrastructure projects will facilitate more investment in these sectors and thereby boost cement demand. Further increased provision under Rural Housing Fund and interest deduction on housing loans will also boost urban and rural housing demand and in turn the demand for cement.

IMPACT ON COMPANIES:-

Company

Impact

UltraTech

Neutral

ACC

Neutral

Shree Cement

Neutral

Governments focus towards infrastructure development and affordable housing is positive for the cement players as it will lead to momentum in cement demand in the long run. However, the increase in custom duty on steam coal and railway freight will add to the cost of cement companies which will negate the benefit to some extent.

India Cement

Neutral