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MOSL: CEMENT-GoI’s continued push on Infra, housing — a key to demand growth

Cement: GoI’s continued push on Infra, housing — a key to demand growth; Outlook fortified with current government’s manifesto

 

Current Govt’s manifesto fortifies healthy demand outlook for cement

• After a 12-13% volume growth in the first two quarters of FY19, cement volumes moderated to 10%YoY in 3QFY19. We believe it will moderate further to 6% YoY in 4QFY19.
• The southern region, which primarily drove demand, witnessed a slowdown in Feb-Mar’19 on account of a high base of the previous year. Also, huge price increases taken by southern players led to lower volumes, as the hikes were not completely absorbed by the market. In North India — demand in Rajasthan declined drastically after the state elections. Demand in Central India too remained muted after the elections in Madhya Pradesh. The eastern region witnessed limited supply from southern players in 4QFY19. Supply of clinker was also affected due to shortage of wagons.
• The manifesto released by the current government continues to maintain its focus on infrastructure development providing a healthy demand outlook. 

Thrust on ‘Housing for All’ continues…

• The BJP in its election manifesto reiterated its focus on ensuring ‘pucca’ houses for families living in ‘kuchha’ houses or without access to housing, by 2022.
• We note that the percentage of houses sanctioned under the PMAY scheme has increased rapidly from 22% in Mar’18 to 35% in Mar’19. The completion rate has also increased from 34% to 53% during the same period.
• Assuming 70% of the targeted houses are completed over FY19-23, the number of completions to be achieved stands at a significant 6.45m units per year.
• This is expected to drive ~32mt cement demand over FY20, implying 2% incremental growth for the year.