A stable state government, large-scale rural infrastructure activity and increased demand from home builders have transformed Bihar from a laggard to becoming the fastest growing cement market in the country.
Cement consumption has surged as much as 35% in 2009-10 after being stagnant between 2006 and 2008 and having had a 13% rise in 2008-09, companies operating in the market said.
French-owned Lafarge India Pvt. Ltd, the market leader in the eastern region, of which Bihar is a part, put the growth in the state between May 2009 and May 2010 at 35%.
Neeraj Akhoury, senior vice-president (sales) at Lafarge India, said year-to-date growth has been faster than that seen last year.
“This is largely due to government projects in rural areas, especially in village and small-town levels,” he said over the phone. “The growth of individual home builders has been very favourable.”
His view was echoed by 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.
“Industry estimates put Bihar growth at 35%, the fastest in the country, much ahead of Uttar Pradesh, which was the next fastest with 20% growth,” he said.
The expansion is more than three times the national average of 10%.
“This growth has come not because of big infrastructure projects, but because of robust rural demand, demand from home builders and small businesses,” Kumar said.
Cement companies estimate that demand has grown to 6-6.5 million tonnes in 2009-10 from around 4.25 million tonnes in 2008-09.
“However, even this 6.5 million tonne consumption is much lower than the 15-17 million tonnes consumed by larger states such as Maharashtra and Tamil Nadu which makes me believe that this growth will continue till this construction activity continues,” said an official with UltraTech Cement Ltd, which is set to become the largest cement company after absorbing Samruddhi Cement Ltd later this year.
Akhoury from Lafarge agreed that the growth will continue “in the mid term given the current per capita consumption which can be substantially improved.”
Rupesh Sankhe, cement analyst with Angel Broking Ltd, said that the growth in consumption in the last couple of years was in line with the brisk economic growth and industrial investments in the state.
Data released in January showed that Bihar had the fastest pace of gross domestic product increase among states in 2008-09 at 11.44%, higher than the 6.7% average growth.
“Specifically for Bihar, the per capita cement consumption is still very low at 53kg in 2009 compared to the national average of 155kg,” Sankhe said. “Even neighbouring states like Orissa with 136kg per capita and Jharkhand with 96kg are higher, which explains the optimism about the potential of the state.”
Both Lafarge, which sells 1.3 million tonnes out of its 6.5 million tonnes of national capacity, and Jaiprakash, which sells around 0.88 million out of its 11 million tonne production in India, expect demand to rise because of low per capita consumption.
By: Joel Rebello