Cement, cable, tile firms to benefit from construction boom

The post war reconstruction and the general economic revival are expected to trigger a construction sector boom over the next five years with cement, cable and tile firms reaping the benefits, industry analysts said.

“According to the Ministry of Finance and Planning, construction related projects worth over Rs 700 billion is planned for 2010-2012. Also it is estimated that the construction projects worth a similar amount will be initiated by the private or the informal sector. We expect the construction sector growth to surpass the expected growth in GDP of 7-8% over the next five years,” Dhanushka Perera, Analyst NDB Stockbrokers said.

He said that main suppliers to the construction industry such as cement, cable, PVC pipes and tile manufacturers are expected to benefit from the revival in the sector. Certain companies that are listed in the Colombo Stock Exchange such as Tokyo Cement PLC (TCP), ACL Cables and Sierra Cables, PVC manufacturer Central Industries, Lanka Tiles and Royal Ceramics will post good results in the coming years, he noted.

A construction industry analyst said that this sector in the short to medium term will outpace GDP growth. “Later with low interest on housing loans we could expect residential building activity to also pick up and gain pace,” he said. Milinda Ratnayake, Analyst SMB Securities also noted that with the prevailing low interest rate environment and increased lending by banks to spur economic growth, construction sector would eventually benefit.

The demand for cement in Sri Lanka is projected to grow at a rate of 6%-7% in 2010 and firms such as TCP which is only operating at nearly 60% plant utilization will benefit, according to other industry analysts.

Viranthi Kumarage, Analyst NDB Stockbrokers said that the key challenges to the rapid development of the construction sector are the possible increase in prices of raw materials such as steel, cement and sand. “Also the skilled labour force in Sri Lanka may be insufficient considering the expected growth in the construction projects,” she added.