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How are cement companies geared for the revival?
Jul 4, 2014

And while we are on the subject of Corporate India, let us see how prepared the cement sector is. Geographically, the cement industry is split into 5 regions. As can be seen in today's chart, Southern India has the highest installed capacity followed by the Northern region. However, Western and Central India are pretty much at par. The reason why South India has highest installed capacity is because the region is rich in limestone reserves.

With the new government assuming power, the construction activity is likely to gain momentum. And this may result in increasing capacity utilization. In fact, as per one study the utilization rate is expected to reach 85% in FY17. If it indeed happens, the cement industry might face capacity constraints and would struggle to meet demand. This may again trigger players to expand their capacities. However, this time around we believe that the industry players would be more circumspect and careful while expanding capacities. Last time around, when the industry faced shortages, players went in for blind expansion which led to significant overcapacity. This led to a huge fall in realization and profits. In fact, there was so much excess capacity that few firms indulged in cartelization to protect their profits. Thus, it would be interesting to see how the players position themselves this time around to capitalize on the infrastructure boom that the country is expected to witness.

Data Source: IBEF Reports

This Chart Of The Day was published in The 5 Minute WrapUp - Can shareholders benefit from high activism?

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