FY16 will be tough yr for north Indian cement mkt: Study

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26 Aug, 2025 12:21

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With both and retail institutional demand struggling to grow, the fiscal is likely to be a "tough year" for the north Indian cement market, which accounted for 31 percent of the country's consumption in 2014-15, a report said."FY 2015-16 will be a tough year for north India, with both retail and institutional demand struggling to grow," Ambit Capital said in its report.In 2014-15, north India accounted for 79 million tonnes or 31 percent of the country's cement consumption, it added."Our discussion with industry participants suggests that the seasonally strong April-June quarter has been poor and given the lack of government tenders, scope of a meaningful improvement in the remaining part of the year is limited."Hence, we do not envisage a volume growth in excess of 3-4 percent, which itself is dependent on higher execution of infrastructure projects," Ambit Capital said.The year 2015-16 was expected as a recovery year, but demand has worsened as rural sales have declined sharply and real estate inventory has hit an all-time high. Infrastructure recovery remains elusive with weak government tendering.North India accounts for one-fourth of cement produced in India (87 million tonnes installed capacity as on end 2014-15) with Rajasthan accounting for 54 percent (and almost entire clinker capacity) and UP for 14 percent of total capacity.Shree Cement is the market leader, followed by UltraTech, Jaypee and Ambuja. Other relatively large producers are Binani Cement, JK Cement and JK Lakshmi, the report said.The increasing prominence of regional manufacturers (51 percent capacity share in 2014-15 as against 45 percent in 2006-07) in a market with limited logistic challenges (largely roads) has led to price wars. Now prices in north India are at a 35 percent discount in comparison to south India, it added.North India is facing growth challenges, on account of infrastructure recovery remaining elusive and rural demand deteriorating significantly in the last one year due to poor rainfall, low subsidies, wage growth and paltry MSP hikes.Besides, the real estate business is facing liquidity constraints due to the government's clamp-down on black money, Ambit Capital said.Regional manufacturers with scale and cost efficiencies will benefit the most in an infra-led cement demand recovery, it added.Pan-India players trade at rich valuations, run earnings downgrade risks and do not have the best cost/capital efficiency to meaningfully improve return on capital expenditures, as volumes might grow but chances of a sharp pricing recovery are scanty, the report said."With retail demand languishing, price increases will be difficult to pass through, as the regional manufacturers compete on prices to garner the maximum volumes from the institutional clients," Ambit Capital said.