With demands set to pick up, UltraTech cement to grow faster than industry

July 25, 2016

UltraTech Cement, the country’s largest Cement company, has given a guidance of 7% growth in cement demand in FY17, higher than 4-4.5% in FY16. Given its size, cost advantage and diversified geographical presence, UltraTech is expected to clock 100-150 basis points higher growth than the cement industry. Analysts say that the 7% demand growth for FY17 can be achieved only if the industry clocks 9-10% growth in the second-half. This target is achievable as cement demand usually picks up in the second-half due to the faster pace of housing and other construction activities.

Almost 60% of the demand comes from housing and construction activities of which rural housing demand has a high share. For FY17, the government is expected to invest Rs. 2,21,246 crore on infrastructure, which includes roads and railways.

A large part of these investments will be in rural areas. Besides this, faster clearances of disputed or stuck projects have also paid off. According to an estimate by Deutsche Bank, the number of stressed projects in the roads sector has come down to a mere 19 from 384 in 2014.

The government has an execution target of 30 km per day of roads in the next two years from 22 km a day in May. Further, the hybrid mode of project award, where the government bears 40% of the costs has seen high interest among road construction companies. This too would contribute to driving up cement demand.

In the coming quarters, though rising pet coke prices may increase fuel expenses for UltraTech, demand growth is expected to offset this. The management’s focus in the coming quarters would be to make the acquisition of cement assets of JP Associates accretive for earnings per share, which is expected to take place in eight quarters.