Cement industry to witness notable expansion

India’s cement industry is about to witness a significant expansion, with projections indicating an addition of 150-160 million tonnes per annum (MTPA) capacity by FY28. This growth will be driven by a two-pronged approach, combining internal expansion (organic growth) and strategic acquisitions and mergers (inorganic growth).

The market is anticipating a 4-6% demand growth in FY25, driven by infrastructure and housing, which may lead to a 1-3% price increase to INR 400-405 per 50 kg bag. Mergers and acquisitions have transferred 110-115 MTPA capacity, with large players now holding 48% share, up from 45%, and over 20 MTPA acquired in April-December 2023.

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India’s cement sector is poised for significant growth, targeting an additional 150-160 MTPA capacity by FY28 through a combination of organic and inorganic routes. Fueled by robust demand in infrastructure and housing, the industry has demonstrated financial resilience, allowing large players to expand and consolidate their market share.

Despite challenges such as a marginal slip in prices and increased competition due to substantial capacity additions, the sector remains optimistic, supported by a forecasted 4-6% demand growth in FY25. The ongoing trend of mergers and acquisitions further highlights the industry’s dynamic landscape and strategic positioning for future expansion.

Resilient cement industry & its expansion in FY25

This surge is underpinned by heightened demand across key sectors such as infrastructure and housing. As we approach FY25, an anticipated 4-6% demand growth is foreseen, despite rising raw material costs. This is expected to translate into a modest uptick of 1-3% in prices, reaching INR 400-405 per 50 kg bag.

Over the past five fiscal years, the industry added a substantial 119 MTPA, reaching a cumulative capacity of 595 MTPA. Looking ahead, the next fiscal year is expected to witness the commissioning of 70-75 MTPA, primarily concentrated in the eastern and central regions. Notably, large players are set to contribute 50-55% to this planned capacity addition.

The robust demand in the preceding fiscal years has fortified the balance sheets of large players and some mid-sized entities with a strong market presence. This financial strength has propelled them to expand capacity, leveraging healthy cash accruals and a solid credit profile.

Projections for FY24 indicate a remarkable 10-12% growth in demand, fueled by governmental initiatives promoting affordable housing and pre-election spending on infrastructure. However, incremental supply and heightened competition are expected to curtail price growth to a modest 0-1%, maintaining prices at INR 390-395 per 50 kg bag level. Cement makers are projected to operate at 70-75% utilization levels.

Navigating price challenges & cost shifts in 2023-24

Despite four years of consistent growth, cement prices witnessed a marginal slip of 1% during April-December 2023. With an unprecedented addition of 35-40 MTPA capacity in this fiscal year, market discipline faces a stern test, potentially limiting price growth to only 0-1%.

The landscape of the industry has witnessed a surge in consolidation, with mergers and acquisitions transferring 110-115 MTPA capacity. Large players have acquired a significant share, increasing their capacity share to 48% from the previous 45%. The current fiscal year has seen an acceleration in this consolidation trend, with over 20 MTPA of capacity acquired between April and December 2023.

Way ahead

India’s cement industry is poised for a transformative phase, projecting a notable capacity increase by FY28 through a combination of organic expansion and strategic mergers and acquisitions. The sector’s resilience, evident in its ability to navigate challenges and capitalize on robust demand from infrastructure and housing, underscores its strategic importance. Despite facing price fluctuations and increased competition due to substantial capacity additions, the industry’s optimistic trajectory and ongoing consolidation trends suggest a resilient and forward-looking future.

Looking ahead, the cement sector’s strategic positioning, driven by both internal growth and industry consolidation, positions it favourably for sustained expansion and competitive strength in the dynamic market landscape. The confluence of strong market demand and proactive industry strategies underscores the potential for continued growth and influence in the years to come.

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