InvestorQ : What is your outlook for cement demand in India and what could be some interesting cement plays in the Indian context for investment?
rhea Babu made post

What is your outlook for cement demand in India and what could be some interesting cement plays in the Indian context for investment?

Answer
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9 months ago


As India tries to graduate towards becoming a $5-trillion economy, consumption of cement is set to increase by up to 6% in the country. Remember, India is already world’s second biggest market for cement and building materials after China. As Nirmala Sitharaman announced recently, the centre proposes to invest Rs. 102 lakh crore to build ports, airports, motorways or irrigation canals. All these are expected to give a big boost to cement demand.

It is estimated conservatively that the government’s infrastructure investment plan will boost the cement sector's demand by 5-6%. In addition, at a retail level, the housing-for-all project is also likely to create a huge demand for cement along with the tailwinds for the future. It has been generally observed that cement volumes are roughly 1.2-1.3 times the growth of GDP. That means if the GDP grows at 5% in real terms then the accretion in cement demand would be close to 6.5%. In addition, on the oil infrastructure front, the expanding pipeline facilities and creating power sector infrastructure in the coming months will directly help sectors such as cement and steel.

Cement demand growth outlook is likely to be positive and will be aided and supported by low base gains, or what we better known as the base effect. Some of the incremental drivers like affordable housing, infra sector push and industrial infrastructure demand needs to be watched. In addition, the input cost pressures for the industry have reduced of late. Prices of pet coke, an important raw material for cement, are also down by 15-20% and the impact will be seen from the coming quarters in 2020. In terms of price performance, a lot will still depend on whether the pricing power shifts from the consumer to the producer or not and that could hold the key.