There are signs of a pick-up in economic activity with steel and cement demand registering strong growth on increased government spending on rail, road and port projects.
The pick up helped Tata Steel and Essar Steel report strong growth in sales during the first quarter of this year.
The other large steel companies such as JSW Steel and SAIL are also expected to log in good growth in demand, said an analyst.
The government has set an ambitious target to construct 15,000 km of national highways with investment of ₹1.5 lakh crore this fiscal.
Binod Modi, Research Analyst, Reliance Securities, said the up tick in cement sales and incremental demand from proposed smart city projects and housing for all schemes bodes well for cement companies which have slowed down their fresh capacity addition.
The capacity utilisation of cement companies will also increase with the revival in rural demand on the back of a favourable monsoon and the building of a new capital in Andhra Pradesh, he said.
The profit margins of both cement and steel companies will also improve as the key raw material prices have fallen substantially from last year.
The raise in steel demand has come as a major relief for the steel companies that have been reeling under debt burden.
While Essar Steel registered 48 per cent rise in output in June quarter to 1.22 million tonnes (mt), Tata Steel’s sales were up six per cent at 2.36 mt.
Tata Steel said its hot metal production was up 16 per cent at 3.01 mt (2.59 mt), while crude steel output was up 8 per cent at 2.36 mt (2.23 mt). Essar Steel pellet production grew 58 per cent to 2.02 mt against 1.28 mt in the same quarter last year.
It registered the highest-ever pre-painted galvanised iron production of 78,000 tonnes (50,000 tonnes), up 55 per cent.
“With the ramp up in production volumes since March, there has been a significant growth in the company’s Ebitda margin to 20 per cent from 5 per cent, which translates to improvement of ₹6,000 to ₹7,000 a tonne,” said Essar Steel in a statement on Monday.
The minimum import price and implementation of the Bureau of Indian Standards on imports has curbed imports and helped Indian companies improve their sales.
Import of steel from China at predatory pricing has been contained, leading to better sales realisations in India, said Essar Steel.