Bihar becomes India’s fastest growing market for cement-1/6/10

Bihar becomes India’s fastest growing market for cement

Dhirendra Singh - June 1, 2010

PATLIPUTRA — Not long ago, columnist and commentator Swaminathan S Anklesaria Aiyar, talked about how during Lalu-Rabri rule, anybody building a house promptly got a ransom note. Not any more. Remarkable improvement in law and order situation plus road and telecom expansion have incubated a boom in small business and domestic construction.

Cement sales in Bihar rode an extraordinary construction boom to grow at a record 36% in 2009-10, eclipsing the national average of 10% by a stretch. With the sectoral growth reaching more than three times the national average, Bihar has now become the fastest growing cement market in the country.

The recent data compiled by Cement Manufacturers of India, an umbrella body of nearly 50 companies, show that Bihar tops the cement consumption list for the country, with an annual growth rate of 36%. It also supports anecdotal evidence of a large number of bridges and other public works being constructed.

According to the State government’s figures, construction now contributes 13.4% of the state’s GDP compared with 4.2% in 2003-04.

Cement consumption is likely to increase further because of a large demand from the rural housing sector. This, in addition to the fact that Bihar is expected to make huge investments in infrastructure in the coming years. As per the estimates of the cement companies, the demand has grown to 6-6.5 million tonnes in 2009-10 from around 4.25 million tonnes in 2008-09.

The two states – Bihar and Uttar Pradesh – have helped cement companies to keep afloat in the market as there is sharp fall in demand in the southern and western regions of the country, which till now had been major revenue earners. South is one of the worst performing market in the country at present, with the demand in that market falling to 2% from 13% during the last year.

Cement companies are optimistic to substantially improve the consumption as they believe “Bihar’s per capita cement consumption is still very low at 53kg in 2009 compared to the national average of 155kg.”

Rahul Kumar, chief financial officer at Delhi-based Jaiprakash Associates Ltd, which claims a 12% market share in the state, the third biggest behind Lafarge and Swiss-based Holcim Ltd owned ACC Ltd said, “Industry estimates put Bihar growth at 36%, the fastest in the country, much ahead of Uttar Pradesh, which was the next fastest with 20% growth.”

K C Birla, senior executive president and CFO, UltraTech Cement, said, “The demand is very good from Uttar Pradesh and Bihar. There is robust rural demand, demand from home builders and small businesses.”

The Bihar government’s economic survey for 2009-10 says that the construction sector registered 35.8 % growth rate. The sector grew by 23.3% in 2004-05, a huge 83.58% in 2005-06 and 30.2% in 2006-07. That ties in neatly with the rising cement off-take in the state.

In an interview with CNBC-TV18, Laveesh Bhandrai, CEO of Indicus Analytics, said: “The Bihar (growth) story is primarily that of the construction sector. It is not agriculture or manufacturing so much.”

The State’s development spending on construction related projects has zoomed from Rs 2,000 crore to Rs 16,000 crore per year. Most impressive has been the rise in road construction, from 384 kilometres in 2004-05 to 2,417 kilometres in 2008-09.

Though the figures have overwhelmed the aggressive players in the sector who are out to exploit the surge in demand of cement, the consumers in the State do not appear happy.

“The high demand has also resulted in increase in cement prices. Cement companies are minting money charging an ‘unfair’ price from the consumers in eastern states of Bihar, Jharkhand and West Bengal. A 50 kg bag costs Rs 285-330 in Bihar compared to Rs 180-275 in other parts of India,” says Harihar Pandey, a villager in Sheohar district.

The prices were hovering between Rs 250-Rs 260 last year, Pandey said, who added that the government needs to strive to keep a balance between the market forces of supply and demand as well as the need for speedy development of our State by keeping cement and steel prices controlled.
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