It?s the time the corporates have just published their financial results for 2014-15. There is an expected amount of discussion and analysis of these results by analysts and the media, all of which give us a window into the companies and the sectors. Cement industry is no exception.
Having looked at these data, here is the bottomline for the cement sector, for the year gone by. Despatches, which is a surrogate for consumption, has grown by about 4.5 per cent, and prices have been under pressure in most regions. Things have been particularly bad in the last quarter, as volumes have dipped, and also prices squeezed in most regions other than in South. So, this has not been a good period for the industry, and many of the companies like ACC and Ambuja have clearly concentrated on cost management to shore up their profitability. UltraTech Cement, which, by size, geographical presence and brand, is something like the ?bellweather? of the industry, suffered a quarter-on-quarter volume decline of 9 per cent on adjusted basis, while improving its EBITDA margin. So, clearly, if growth is what the industry was looking for, it was disappointed. But it looks like the wait for ?Good Times? just got even longer.
In the olden days, the performance of steel and cement industries used to be taken as a barometer for the state of economy. We used to talk about a multiplying factor of 1.2 or 1.3 to empirically project cement demand growth from GDP growth. This approximation seems to have been distorted in the current context. Which was India?s true growth rate last year, 7 per cent or 5 per cent? We seem to have lost in the statistical confusion, even as we wait for the expected construction boom, the manufacturing revolution and the infrastructure makeover to materialise. But, if we believe our traditional barometer, the lowly cement market growth points towards a correspondingly low growth of our economy, which in turn is reflected in the fact that consumption is stagnating, job opportunities are not increasing, and overall sentiments are turning bearish. Our friends in the cement industry are cautiously optimistic, when they predict a moderate 7 per cent growth in 2016-17. Why do we term even this moderate growth projection to be optimistic? Because, firstly, cement demand growth substantially hinges on infrastructure boom, and secondly because our ?imminent? infrastructure boom may take another 2-3 years to fructify. Interestingly, the Head of UK India Business Council has been quoted as saying that the sentiment has moved from irrational exuberance to rational optimism.
In such a situation, with volumes and prices subdued, our cement companies will have to concentrate on the cost-side story, and continuously improve their relative competitiveness. Energy efficiency is a crucial element of cost, and we have featured this topic in our current issue, which will interest our constituents. The average capacity utilization being around 70-72 per cent, makes the job of improving energy efficiency that much more challenging. Companies will innovate, install efficient equipment and drives, optimize fuel-mix, hike fly-ash absorption, and try to enhance fuel substitution rates, to manage energy costs in such a difficult scenario.
Finally, as we conclude, let us mourn the tragedy that has struck our neighbouring country, Nepal, where thousands of lives have been lost. Perhaps, much of the deaths and destructions could have been mitigated, if we were to follow our construction codes and standards as applicable to respective seismic zones, more conservatively. Let us hope that going forward, better wisdom will prevail among the fraternity of law makers, regulators, builders, professionals, and also individual home-builders.
