Positive – but in the long term
NER has huge initiatives lined up for the development,but bottlenecks are not easy to resolv here. The conservative nature of the population and resistance to change is one such key bottleneck. Building nearly 10,000 kms of road, +50,000 MWs of hydropower, building infrastructure across railways, airports, inland waterways is a definite trigger that will boost cement demand in the long term but bottlenecks (land acquisition, forest clearances etc.) persist. Nevertheless, NER’s cement demand is likely to grow at sustained and healthy growth rate in the medium term.
Even if 10% of NER’s planned projects take off, it will boost demand CAGR to +8% very easily because of a low base of only 7mn tonnes p.a. of cement consumption. Hence, any major infrastructure initiative will create significant demand. Demand from housing is also likely to provide the crucial near term support.
Opportunities remain in favor of incumbents
Growth opportunities in NER remain distinct and unique and the regional decision making authorities are aware of this. However, the local environment is still not open enough to support all these growth initiatives though much has changed from what it used to be around 20 years back.
Ground view firmly believes that NER will continueto be a region dominated by likes of Star Cement, Dalmia Bharat and TopCem and it is very unlikely that new players will make a mark in this territory. Big boys like Holcim group, UltraTech may not make a mark here at all and may look for an opportunity in form of an alliance partner with any of the existing leaders / local cement manufacturers.
Local connect is the key to success
Unlike other regions in India, the success for any cement manufacturer (non-local) in NER is its ability to connect with the local people. Branding initiatives in NER tend to be much stronger than in other regions. Advertisement budgets of regional leaders such as Star Cement are massive and in terms of percentage of sales, they are even larger than the national cement majors. Local connect is the key to success in NER.
To sum up, NER is more of a long-term opportunity and this region will generate huge cement demand once infrastructure initiatives gather steam. If this happens sooner than expected, it won’t be surprising to see cement grinding capacities in West Bengal and Bihar upping their supplies to NER (given that it is tiresome to setup capacities in this region). It is premature to quote absolute numbers for potential of cement consumption in the region, but given its underdeveloped nature, NER offers significant growth potential in the long term and remains an attractive region to bet on.
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