See 4-5% demand growth for cement in H22016: CRISIL

Demand recovery remains patchy, margins to remain flatCRISIL Research expects cement demand to grow by 3.5-4% this fiscal, lower than the 5.2% seen in the last fiscal, owing to weak infrastructure spending, poor monsoon for the second consecutive year, ban on sand mining in central India, and floods in Tamil Nadu in the third quarter. Demand was lacklustre in the first half all over the country, barring the east, growing just 3%. However, in the second half, demand is expected to grow 4-5% following relaxation of the ban on sand mining.Next fiscal, demand growth is expected to increase to 5.5-6%, led by higher public investments in infrastructure. Infrastructure demand will be driven by spending on construction of national highways, higher spending in states such as Andhra Pradesh, and implementation of central schemes such as Atal Mission for Rejuvenation and Urban Transformation (which seeks to provide basic infrastructure and sanitation in cities). Pan-India utilisation rates remain at 71% this fiscal due to marginal demand growth and addition of new capacities. Utilisation rates are expected to improve slightly in the next fiscal following a pick-up in demand and slow capacity addition.Pan-India prices have remained flat in the nine months of the current fiscal because of poor demand. South market was the only exception with 14 % y-o-y growth in nine months ended December 2015. CRISIL Research expects pan-India cement prices to increase by a modest 4.5-5% annually next fiscal over an estimated 0.5-1.5% in the current fiscal.Operating margin (of players accounting for 60% of cement sector revenue) is expected to increase 40-50 basis points this fiscal due to lower power and fuel costs. CRISIL Research expects operating margins to remain flat next fiscal.