Cement sector rides high on housing boom

Riding on rejuvenated housing and infrastructure activities the Rs 30,000 crore (Rs 300 billion cement industry recorded a turnaround this year even as controversies like Grasim-L&T made headlines.

Despite suffering from rising costs in inputs like coal, power tariff and labour cost causing depressing bottomlines, the industry witnessed hardening of prices in the second half of the current year.

What came a cropper was the leverage expected from the fast pace of national highway projects- Golden Quadrilateral, East-West and North-South Express Corridors, apart from rural schemes like Pradhan Mantri Gram Sadak Yojana and Indira Awaas Yojana.

However, the generous bank rate cut, a 29-year low at 6.25 per cent, forced housing finance companies to bring down interest on home loans and come up with additional sops, a bonus for the consumers as well as the cement sector.

The healthy growth also attracted foreign players who have adopted a strategy of either joining hands with domestic players or individually picking up ailing mini-plants.

However, the biggest controversy of the year involving two of major players--L&T and Grasim--shook the whole industry.

While Grasim made an aggressive bid for 20 per cent stake through an open offer route, L&T moved in the direction of a demerger of its cement sector by setting up a committee for this. But market watchdog Securities and Exchange Board of India stepped in and put a hold on it for the time being.

The sector, however, was not able to spread its wings fully because of twin factors of rather restrictive clause on foreign direct investment in real estate and failure to tap the export markets at least within the SAARC countries.

Industry veterans feel that the sector could have posted a even higher growth, which is near 9.0 per cent till date had it not been for the two irksome issues.

As per the current FDI norms, a project should have a minimum 100 acres area or a wholly owned subsidiary of a foreign company and has to bring in a minimum capital of $10 million.

Irked by these restrictive norms, many potential entrants are keeping cards close to their chest.

The industry witnessed consolidation as domestic players picked up mini plants and carried out their restructuring programmes.

The healthy signs exhibited by the industry during the current year were also attributed to a boom in construction activities in states like Gujarat, Maharashtra and Kerala.

-- PTI

2002: The Year That Was