Cement makers in North India likely to post better profits: ICRA

An uptick in demand in north India followed by strong pricing discipline resulted in a rebound in cement prices to Rs 305-345 percent bag in the first half of 2016-17 from Rs 225-240 a bag in January 2016, ratings agency ICRA said.

During April-September 2016-17, cement prices in the North were higher by around Rs 60-65 per bag, compared to the same period in 2015-16, ICRA said in a statement.

ICRA expects most North Indian cement manufacturers to report better profit numbers for the first half of 2016-17 vis-a-vis same period of 2015-16.

While production growth during April-August was higher at 4.4 percent compared to April-August 2015 at 2.1 percent, it still remains moderate, ICRA Senior VP Sabyasachi Majumdar said.

"This has been owing to a significant decline in the demand growth during April-May 2016 due to continued weak rural demand (especially in Maharashtra, which is facing a drought) and a slowdown in the pace of infrastructure execution, owing to unavailability of water," he added.

The demand picked up only during June 2016, with a production growth of 10.4 percent y-o-y, driven by increased demand from the northern region, primarily Uttar Pradesh due to increased government spending on infrastructure and irrigation projects, Majumdar said.

With the onset of monsoons in most regions, demand for July and August has shown a decline of 10.5 percent and 4.5 percent, respectively on an month-on-month basis.

However, on a year-on-year (y-o-y) basis the demand growth during July-August 2016 has been modest at 2.2 percent, he added.

"Demand growth during 2016-17 is likely to be driven by pick-up in the infrastructure segment, primarily road projects and the housing segment, during the next one year; this apart, there is a likelihood of a recovery in the rural demand from H2 FY2017, given the expectations of a better monsoon," Majumdar said.

With the pace of new capacity addition slowing down, ICRA expects capacity utilisation and the supply-demand scenario to record an improvement, especially in 2017-18, which should support cement prices and profitability indicators for cement manufacturers, he added.