On the flipside, there has been significant rice in prices of major inputs of the industry. The prices of cement, which is a major raw material for industry have abnormally shot-up and even availability has become a constraint. In the month of May prices of Mumbai cement were up by 32% on Y-o-Y basis Rs 245 / bag. Also due to increased demand from Russia and China markets the Fibre suppliers have also increased the prices. Surge in input cost have led to fall in OPM of the industry by 250 basis points to 15.9% in fourth quarter of FY 2006.

However prices of galvanized steel sheets has also increasing on account of increasing steel price. Galvanized steel sheets are also used in housing, as an alternative to asbestos-based products. But the rising steel prices have made galvanized steel sheets more expensive, thereby increasing the gap between the prices of the two products. Since January 2006 there has been a sequential increase in prices on monthly basis. During the period between January 2006 to May 2006 on a sequential basis, the prices of HRC and CRC inclined by 26% and 16% respectively to Rs 30000 per tonne and Rs 33900 per tonne.

Secondly, the industrial segment (which forms about 30% of the total demand), asbestos sheets are preferred over galvanised steel sheets due to better heat resistance, anti-rust qualities and lower prices. Corrugated roofing sheet are extensively used for roofing of industrial sheds, warehouses, poultry farms, shops. Thus volume growth of the industry is not likely to be affected by substitution of asbestos-based products by galvanized steel sheets.

Thus, with rising income and improving standard of living in rural areas and expansion of industrial capacities the demand for asbestos sheets expected to grow by 10%-15% over the next two-three years. To meet the increasing demand coming from the housing and industrial segments, the industry is scaling up its capacities.

For instance, Hyderabad Industries, which is market leader in the cement products industry, have decided to set-up two plants to manufacture fibre cement sheets and accessories at an estimated cost of Rs 30 crore each. The company has also planed to set-up a plant to manufacture autoclaved aerated concrete blocks at an estimated cost of Rs 40 crore. Thus, the total capex of planned by the company for 3 plants amounts to Rs. 100 crore.

The company has recently started commercial production of asbestos cement sheets and accessories at the company's Satharia unit, Uttar Pradesh from 3^rd July 2006. The new unit is expected to drive topline of the company.

Similarly Visaka industries, in order to gain presence across India has expanded its capacity in Rai Bareli, UP by 1.20 lakh tonne p.a. (production started in the month of January). Visaka Industries has further plans for Greenfield expansion in Ahmedabad and Vajayawada with a capacity of 1,10,000 tonne each and the production in the two is expected to start by Q4 FY07 and Q3 FY08 respectively. This would give Visaka Industries capacity to total of 6.60 lakh tonne by FY08.

In the quarter ended June 2006 Visaka industries Cement Asbestos Products division has reported 46% surge in revenue to Rs 82.41 crore. The PBIT margins of the division has improved by 314 basis points to 18.01%. Thus PBIT of the division has zoomed by 77% to Rs 14.84 crore.

Another major player Ramco Industries is planning to enter into manufacture of Plastic Water Tanks. The company has also increased its capacity by 0.72 lakh tonne to 4.94 lakh tonne (started production in Feb’06). This would give the company an exposure to the eastern and northeastern markets.

Outlook

With the rising income and improving standard of living in the rural areas and demand for asbestos sheets expected to grow by 10%-15% for the next 2-3 years. Moreover, with the expected recovery / increase in steel prices, the consumption of asbestos-based cement sheets over its nearest substitute galvanised steel sheets, is expected to rise further. Healthy rise in demand, possibility of improvement in margins due to positive recommendations in the budget 2006-07 together can facilitate healthy rise in revenues and profits for the domestic asbestos cement sheet producers.