Sanghi Industries Ltd is the flagship company of Ravi Sanghi Group which is engaged in the production and distribution of cement under the brand name Sanghi Cement. Alok Sanghi, in an interview with Renu Rajaram, shares his views on the impact of economic slowdown on the Indian cement industry.
How is the global economic slowdown affecting the cement business in particular and construction sector as a whole in India?
Infrastructure spending has been severely impacted since last three years due to economic slowdown and construction sector has not been spared either. Due to consistent delays in various infrastructure projects, players in this space are now sceptical about V-shape recovery.
If we look at cement industry in particular, economic slowdown has acted as a double whammy as the industry is already going through oversupply situation. Demand has been subdued and capacity additions are happening at a faster pace than consumption growth.
Since last few months, there has been monetary easing and this is likely to change the situation, though it may take a couple of more quarters before infrastructure spend actually starts again.
What is the demand-supply scenario for cement? What are the growth drivers for this sector?
The industry is facing significant oversupply currently with supply of cement expected at 300 plus million tonnes and demand pegged at around 260 million tonnes. The oversupply position is likely to continue for another couple of years before the gap reduces. We believe that growth drivers for this sector in the next few years would be infrastructure spend by government and private projects that have been stalled since last few years. A pickup in real estate projects in future would be the other growth factor.
Capacity addition has not augured well for the cement sector. How do you view this situation?
Yes, capacity additions have not augured well for the cement sector. The demand of cement has not grown as expected due to various reasons including the general slowdown, stalling of major infrastructure projects and sluggish demand by real estate sector. The imbalance in the demand-supply equilibrium will prevail for a few more years till the pace of off-take of various government infrastructure projects increase substantially and the housing and real estate sector revives on the waves of easing interest rates and other such corrective measures.
How is Sanghi Industries placed to meet the surging demand in infrastructure segment?
We are presently operating at around 85 per cent capacity, much above the average industry capacity utilisation of around 70 per cent. We believe that expanding grinding capacity would increase our capacity utilisation to above 90 per cent. So, we are already making optimal use of our existing capacities.
We are expanding our grinding capacity from 2.6 million tonnes to 3.3 million tonnes. This will result in higher capacity utilisation. We will be funding the expansion from internal accruals.