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Gujarat cement cos to witness high volumes

Netscribes/Neeta Kolhatkar

Gujarat-based cement companies will see a huge rise in volumes over the next six months as the quake-hit state starts reconstruction work on a massive scale. Cement units in the state, long working far below their installed capacities, will now see an increase in utilisation levels.

The three major companies in Gujarat are Saurashtra Cement with 1.16 million tonne capacity, Gujarat Ambuja Cement with 1 million tonne capacity and L&T with 4 million tonne capacity.

Analysts expect these companies to see a significant rise in volumes in the next six months due to the massive rehabilitation work being planned by the Gujarat government in consultation with the Centre. The Gujarat government has sought Rs 13.5 billion as aid from the Centre.

"Although exact assessment is yet to be made, the existing capacities of Gujarat-based cement companies are comfortable to meet the requirement. As of now, there has been no volume growth in these companies largely because of last year's drought. The earthquake reconstruction work will provide an increment to volumes," said Ramnath S, equity analyst of TAIB Securities, a Bombay-based securities firm.

The growth in volumes will reflect in the next quarter, he added.

Despite the rise in demand, analysts don't expect a hike in cement prices in Gujarat. In fact, prices may actually come down, they say. "International rehab agencies coming to the state will source cement from abroad. The cement price per bag for these agencies will be lesser even with import duties. So, cement companies supplying to Gujarat will be forced to bring down prices," said Ramanth.

Currently, the benchmark prices for cement are Rs 192 per bag in Bombay and Rs 175 per bag in Gujarat.

There are reasons other than purely economic ones for this. "Companies like Gujarat Ambuja, who are based in Gujarat and whose company heads are of local origin, will lower the rates for sentimental reasons."

Builders too will seek a reduction in prices. "Many builders are meeting on Thursday to discuss the final plan for rehabilitation and reconstruction. We are planning to adopt poor villages to construct houses free of cost or for small token amounts," said Harish Patel of Rajesh Builders, Rajkot.

However, the extent and intensity of damage have yet to be assessed. Unlike Latur, where the impact was limited to certain areas, villages and towns across Gujarat have been reduced to rubble.

"The damage is more widespread in Gujarat. In Latur, total destruction was restricted to a few villages," said a senior secretary of the Mahrashtra government, who was involved in the Latur rehabilitation.

"Most houses in Latur had cracks, which were filled in with retro-fitting. However, given the scale of damage in Gujarat, total reconstruction will be required." He added that unlike Latur, the Gujarat government will have to relocate entire villages rather than rebuild in the affected areas.

"The reconstruction in Gujarat will provide more opportunity for diversified companies like L&T which have a back-up of EPC," said Ramnath.

Engineering, steel and other construction-related businesses are also likely to benefit.

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