The Hindu Business Line : Cement cos double spend on expansion in 2008-09

BL Research Bureau Even as other major sectors of the Indian economy are going slow on expansion, the large listed players in the cement industry have continued to invest in capacity expansion in the latest financial year.

Nine large listed players reported that their capital work-in-progress (expansion projects that were not finished by year end) nearly doubled in 2008-09, compared with a 58 per cent growth in 2007-08.

The Aditya Birla group, that operates both Grasim Industries and UltraTech Cement, however, was an exception to this trend and saw a steep fall in capital work-in-progress for the year.

Demand hopes

Compared to last year the industry spent 35 per cent more cash in 2008-09 on buying fixed assets and machinery. Hopes of demand eventually matching supply growth on increased infrastructural spends are triggering these investments, say industry sources.

ACC and Ambuja Cements have reported an over 150 per cent growth in capital work-in-progress by March 2009 over last year.

Prism Cements and Shree Cements too have reported a significant increase in the capital work under progress. UltraTech’s and Grasim Industries’ reduced capital spending followed their commissioning of large capacity in the previous year itself. In 2007-08, the group added over 52 per cent to its gross block.

Capacity addition

Companies of the South, despite the recent muted trends in demand continued to add capacities. India Cements, Madras Cement and Dalmia Cement saw higher capital work-in-progress for 2008-09 over the previous year. Their additions, however, were lower than those of their counterparts in other regions.

Southern region has seen some sharp Rs 8-10 a bag correction in price in the last week. Signs of price weakening are not seen yet in the North. Mr Sumit Banerjee, Managing Director, ACC, said during the company’s recent earnings announcement, “While significant new capacity is to be added in the coming months, demand led by housing, retail and infrastructure sectors is expected to remain firm in the foreseeable future.”