Credit Suisse expects better prospect for cement firms

In the next two years, prospect of cement companies may improve as supply pressure eases and demand rises, a research report by Credit Suisse shows.

Cement firms have been battling supply glut because of excess capacity, which was built in anticipation of strong demand from the infrastructure projects.

But the infrastructure development slowed down considerably (thanks to the policy paralysis of the government coupled with corruption and global slowdown) and demand failed to match the rise in supply.

But the report expects the cement upcycle to continue at least for the next two years with accretive price increases leading to margin expansion. Capacity additions should peak out in 2013-14 and production discipline should imply a recovering 2013-14 and a stronger 2014-15, the report notes.

The higher outlay announced in the recent Union Budget for rural infrastructure development may improve demand foe cement, the report notes. The budget raised allocation for Prime MinisterÂ’s Rural Roads Programme (PMGSY) and rural housing (Indira Awas Yojna).

Credit Suisse expects ACC and Grasim to outperform in the next 12 months while it is neutral on UltraTech Cement and Ambuja Cement. None of the south-based cement companies were covered in the report though.