Government's Capex Focus to Support Cement Demand: India Ratings
Eastern Region Demand to Receive Support: Ind-Ra believes the infrastructure development plans announced in the budget should lead to an increase in cement demand growth in eastern India, which has remained subdued in the recent past. Bihar has been a key focus area in the budget, with an allocation of INR260 billion towards road connectivity projects including expressways and bridges and INR214 billion towards power projects, in addition to airports, irrigation projects, religious tourism hub, etc. Additionally, the Amritsar-Kolkata industrial corridor with an industrial node in Gaya could catalyse industrial development and aid cement demand in the under-penetrated eastern region, where per capita cement consumption is lower than the national average. Furthermore, flood management and reconstruction projects would aid cement demand in eastern states such as Bihar and Assam and northern states of Uttarakhand and Himachal Pradesh.
Andhra Pradesh Capital Development to Support Medium-term Demand in South: South-based cement companies, particularly ones with exposure to Andhra Pradesh, could see demand traction over the next few years. The demand will emanate from the development of the new capital Amravati for which INR150 billion has been committed for FY25 in the budget. Moreover, an additional allocation towards capital investment for essential infrastructure such as water, power, railways and roads in the Kopparthy node on the Vishakhapatnam-Chennai Industrial Corridor and Orvakal node on the Hyderabad-Bengaluru Industrial Corridor would aid the demand. A fillip to demand growth in the southern region is essential, given the sub 60% industry capacity utilisation and the new capacities in the pipeline.
Marginal Increase in Affordable Housing Allocation for FY25; Continued Focus Provides Medium-term Visibility: The Pradhan Mantri Awas Yojna (PMAY) scheme saw a 5% increase in the allocation to INR847 billion for FY25 over the interim budget. Under PMAY Urban 2.0, an investment of INR10 trillion has been planned over the next five years. The housing segment constitutes around two-thirds of the total cement demand, of which affordable housing is around 20%. Demand from this segment has been tepid in the past couple of years, but the allocation provides visibility for the near-to-medium term, given the original targets are nearing completion. Besides, rental housing for industrial workers would aid the demand over the near-to-medium term.
Continued Capex Focus; Budgetary Allocation in Line with Interim Budget: The budgetary allocation towards capex at INR11.1 trillion for FY25 remained unchanged from the interim budget, although the allocation to states in the form of interest-free, long-term loans within the capex has increased to INR1.5 trillion (from INR1.3 trillion in the interim budget). The allocation, which is 17% higher than the provisional expenditure for FY24, is 3.4% of GDP for FY25 - the highest in the past seven years (FY24 provisional: 3.2%). The overall budgeted capex (including grants-in aid for capital creation and internal and extra-budgetary resources) has been increased marginally to INR18.7 trillion (interim: INR18.4 billion), given the increase in Internal and Extra Budgetary Resources (IEBR). The past two years witnessed a large increase in the budgeted capex with the government trying to do the heavy-lifting as private capex remained sluggish. The budgeted capex growth rate in FY25 is lower than the budgeted growth in the past two years, which could lead a moderation in the cement demand growth rate, although demand addition would remain healthy.
