The cement industry, spurred by rising demand in infrastructure and housing, is set for a significant capacity expansion, aiming to add 150-160 million tonne (MT) from FY25 to FY28, according to a report by Crisil Ratings.
Over the past five fiscal years, the industry has already augmented its capacity by 119 MT annually, reaching a cumulative total of 595 MT. This strategic expansion aims not only to cater to the escalating demand but also to consolidate market share in an industry characterised by high fragmentation and intense competition.
Further, the report indicates an eight per cent growth in cement demand during fiscal 2022 and a further 12 per cent surge in fiscal year 2023. Looking ahead, an estimated 70-75 MT of capacity addition is anticipated in the next fiscal year, with a concentration of 50-55 per cent in the eastern and central regions.
Major players are expected to contribute significantly to this planned capacity addition, accounting for 50-55 per cent of the expansion. However, despite the increase in supply, the report foresees stiff competition that may limit price growth. Nevertheless, favourable cost dynamics are anticipated to protect and bolster profit margins.
Additionally, the cement industry has witnessed demand in the last two fiscal years, resulting in strengthened balance sheets for large players and some mid-sized entities with substantial market presence.
For the current fiscal year, demand is projected to grow between 10-12 per cent, driven by government initiatives in affordable housing and pre-election spending on infrastructure. However, incremental supply and heightened competition are likely to maintain prices in the range of Rs 390-395 per 50-kg bag, with utilisation expected to hover between 70-75 per cent.
Miren Lodha, Director, Crisil Ratings noted that cement prices witnessed a one per cent decline in the first three quarters of the current fiscal year, marking a trend reversal after four years of consistent growth between fiscals 2020 and 2023.
Looking ahead to the next fiscal year, the report anticipates a moderation in demand growth to four to six per cent, influenced by a high base from the previous three fiscal years. Rising raw material costs and a stable base are predicted to lead to a modest uptick of one to three per cent in prices, reaching Rs 400-405 per 50-kg bag.
Further, Sehul Bhatt, an associate director at the agency, highlighted that a softening of power, fuel and freight charges, constituting 50 per cent of total production costs, has provided relief to manufacturers amidst steady realisations.
Consequently, lower costs, stable prices and robust volumes are anticipated to expand operating margins by 300-350 basis points to 16.5-18.5 per cent in the current fiscal year. This rebound in profitability follows a contraction of 620 basis points in the last fiscal year due to elevated pet-coke and coal prices.
