India Cements Ltd. is looking to take advantage of the current conditions in the Southern States. The company’s President Rakesh Singh, indicated that prices of cement have improved in the Southern states of the country. This was mainly due to higher demand was seen in the region. As a result, the company stands to deliver better profits for the current year. One of the reasons for better demand was the estimated increasing infrastructure spend apart from a good monsoon. However, the home State contribution is expected to be minimal due to number reasons.
India Cements sees that the demand to expand between 8 and 10 percent for companies of southern region alone. This is in contrast to either a drop or no growth in the past five-year period, BloombergQuint reported The Chennai-based firm is looking for a recovery in the home State at least to a limited extent. Tamil Nadu has already been facing a number of issues, and the infrastructure activity was mired by a ban on sand mining besides water-related issues.
However, the president of the company expects the State to rebound. He pointed out that Telangana and Andhra Pradesh have undertaken initiatives on irrigation and this could have the potential to drive higher demand in the southern region. The last few years have seen the sector getting hindered for one or the other reason. This included demonetization and the introduction of GST apart from fresh regulations covering the real estate sector.
India Cements’ capacity utilization has hit 70 percent in the March quarter, which is the fourth quarter for the firm. This meant that the company had outperformed the industry average of 68 percent in the same period. Singh explained why pricing growth was key for improving profits of the company. The cement manufacturer’s 65 percent exposure was the southern region. Therefore, the company is confident of its price improving the profits in the current fiscal year, which could be better than the previous years. The preceding years had to face increased pressures from the costs.
Another key factor is that India Cements sees approximately 37 percent of growth coming from Andhra Pradesh and the Telangana States in the March quarter. Incidentally, after the bifurcation of the States in 2014, the two States were spending on infrastructure focusing on irrigation requirements. Andhra is also embarking on developing Amaravati as its capital. Therefore, the demand is expected to be at elevated levels.
Home State Performance
None-the-less, the company’s performance in the home State is not as impressive as others. Tamil Nadu was the least contributor in the region due to lack of water and sand mining issues. As a result, the company could achieve only four percent growth, and the issues are still to haunt.
However, if the State witnesses a revival in demand, then the Southern firms could gain 10 percent or more growth. Aside from that, there is also governance issue haunting the State and Kerala thus affecting the demand. The company expects better pricing and improved demand to continue. As Parliamentary elections are scheduled in May 2019, the current ruling governments will be hard pressed to spend on infrastructure.