Rural demand to lead cement turnaround

This story first appeared in DNA Money edition on Thursday, Apr 11, 2013.

The Indian cement sector is set for a recovery this fiscal on the back of a likely strong growth in rural housing and a pick-up in roads and railways sectors.

Experts are also expecting a margin expansion as demand growth improves to 7% vis-a-vis 5% in fiscal 2013, with housing growing at 8% and infrastructure at 5%.

Anubhav Aggarwal, Kush Shah and Chunky Shah, analysts with Credit Suisse, said in a report on Wednesday that housing constitutes two-third of the cement demand, with rural housing accounting for 40% of the total demand.

“We expect cement demand from housing to grow at an 8% CAGR, with the bulk of growth coming from rural India,” they said.

Mahendra Singhi, executive director, Shree Cement, a manufacturer, said growth in rural housing will certainly have a positive impact on the sector.

“The government’s initiatives in this direction will take at least two quarters to start showing results,” he said.

An ACC spokesperson said India has the largest homeless population in the world and rural housing offered a huge opportunity.

“However, doing affordable housing is also a huge challenge in India. While demand for such housing is tremendous in rural India the question to ask is how will they get money to build those houses,” the spokesperson said.

The Credit Suisse analysts said that rural housing demand is expected to grow at 11%, mainly due to strong rural wage growth (about 18-20%).

“Demand from rural housing is driven by government-supported schemes (15% of demand) and rising rural income (85%). Penetration of pucca houses in rural India is low at 52% (versus 83% for urban). Demand growth last fiscal was impacted with the government spending only 80% of its budget on the rural housing schemes, but we expect a rebound this fiscal with the budget set 70% higher,” the analysts said.

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