India's Cement Expansion: Growth Amidst Challenges

The Indian cement industry is set for a 70-75 million metric tonnes capacity boost over the next two years, largely driven by the eastern and southern regions. Despite expansion, moderate utilization rates and revised growth forecasts highlight the pressure on profitability and the influence of economic factors.

The Indian cement industry is poised for a substantial capacity increase of 70-75 million metric tonnes over the coming two years, as reported by rating agency ICRA. This growth will mainly arise from an increase in clinker and grinding capacities, contributing roughly 33-37 million MT and the remainder in grinding, respectively.

ICRA projects that around 33-35 million MT of capacity will be added in FY2025, with a further 37-39 million MT in FY2026. The expansion is projected to be predominantly led by the eastern and southern regions, which together are expected to contribute 38-40 million MT during this period.

Despite the anticipated growth in capacity, utilization rates are expected to remain relatively moderate. The rates might see a slight improvement to 71% in FY2025, as compared to 70% in FY2024, driven by increased cement production. However, ICRA has downgraded its growth forecast for cement volumes during FY2025, attributing the revision to slower post-election construction activities.

The annual growth in cement volumes is now forecasted at 4-5%, amounting to 445-450 million MT, down from the previous estimate of 7-8%. The slowdown stems from sluggish construction in both housing and infrastructure sectors following the General Elections.

In H2 FY2025, the industry is expected to benefit from improved farm incomes due to favorable monsoons, robust kharif crop yields, and sufficient reservoir levels for rabi sowing. These conditions are anticipated to enhance rural consumption, bolstering cement demand in rural housing, alongside steady urban housing demand.

Despite the potential improvements in the latter half of FY2025, the OPBITDA/MT for cement companies in ICRA's sample is likely to remain pressured, decreasing by 12-15% year-over-year to Rs 820-850/MT, according to Tushar Bharambe, Assistant Vice President and Sector Head of Corporate Ratings at ICRA. Infrastructure activity is expected to accelerate in H2 FY2025 due to increased government infrastructure spending, providing a boost to the cement sector.

Nevertheless, challenges to profitability in the cement sector are projected to persist throughout FY2025. (ANI)

(With inputs from agencies.)