Despite lower demand, cement companies are expected to maintain their profit in the near future on the back of higher price and lower input cost.
In last seven months of this fiscal cement prices have gone up substantially compared to last year's level.
In the Mumbai and Hyderabad markets, cement prices were higher by 10-14 per cent and in Delhi it up by 20-25 per cent, despite a slight decline during the monsoon season.
Sabyasachi Majumdar, Senior Vice President & Group Head, ICRA Ratings said easing of cost pressure owing to a decline in the input costs such as coal, pet coke and diesel prices along with higher cement prices is likely to support the profitability in the near term though revival of cement demand remains crucial.
Demand growth seen at 4%
The domestic cement demand growth is expected to taper at about four per cent in this fiscal from a healthy growth of 13.3 per cent logged in the previous financial year.
Overall, in the first half of this fiscal, cement production was higher by a mere 0.7 per cent to 163.7 mtpa (162.5 mtpa).
The demand growth in June quarter was adversely impacted due to a slowdown in project execution on the back of general elections and labour unavailability.
Given the current situation of delay in project execution arising due to liquidity issues, the revival in demand in the near term remains critical to even achieve a growth rate of 4 per cent this fiscal, said Majumdar.
At this growth rate and with expectation of about 20-22 million tonne capacity addition this fiscal, the capacity utilisation to remain at last year's level of 71 per cent, he added.
In the western region, while demand in Gujarat was negatively impacted by labour and water scarcity, in Maharashtra, it was positively driven by infrastructure and affordable housing.
In the eastern region, demand was sluggish across segments, due to weak project execution, unavailability of sand and shortage of funds. In the southern region, demand momentum sustained in Kerala driven by post-flood rehabilitation work and low-cost housing, while it was sluggish in Karnataka and Andhra Pradesh.