To cash in on rising demand from infrastructure and housing sectors, the cement industry is on course to add capacity by 150-160 million tonnes from FY25 to FY28, a report said on Tuesday.
Cement demand grew 8 per cent in fiscal 2022 and 12 per cent in FY23
To cash in on rising demand from infrastructure and housing sectors, the cement industry is on course to add capacity by 150-160 million tonnes from FY25 to FY28, a report said on Tuesday.
In the past five fiscals, the industry has added capacity by 119 million tonnes (MT) per annum to reach a total of 595 MT now, according to a Crisil Ratings report.
The capacity addition is for the purpose of meeting the rising demand as well as to consolidate market share in a highly fragmented and competitive industry, the report added.
Cement demand grew 8 per cent in fiscal 2022 and 12 per cent in FY23.
As much as 70-75 MT capacity addition is expected to be commissioned in next fiscal, with 50-55 per cent concentrated in the eastern and central regions.
Large players will account for 50-55 per cent of the planned capacity addition, the report said, adding, however, incremental supply and stiffer competition will cap price growth but benign cost will protect and aid margins.
Robust demand in the past two fiscals has bolstered the balance sheets of large cement players and some mid-sized ones with strong market presence, prompting them to expand capacity on the back of healthy cash accrual and credit profile.
This fiscal, demand is projected to grow 10-12 per cent, driven by the government push to affordable housing and pre-election spending on infrastructure. That said, incremental supply and heightened competition will limit price growth to 0-1 per cent, maintaining prices at Rs 390-395 per 50-kg bag, and keep utilisation at 70-75 per cent.
Next fiscal, the demand growth is expected to moderate to 4-6 per cent on a high base of the previous three fiscals. Also, rising raw material cost and a flat base will lead to an uptick of 1-3 per cent in prices to Rs 400-405 per 50-kg bag, it said.
According to Miren Lodha, a director with the agency, cement prices inched down 1 per cent during the first three quarters of the current fiscal, marking a trend reversal after four years of growth between fiscals 2020 and 2023 when it grew at compound annual growth rate of 4 per cent.
With capacity increasing by 35-40 MT this fiscal, the highest in more than a decade, and acquired capacities being ramped up, a significant increase in supply will test market discipline and restrict the increase in prices to only 0-1 per cent, he warned.
According to Sehul Bhatt, an associate director at the agency, softening of power, fuel and freight charges, which account for 50 per cent of the total production cost, has provided a breather to manufacturers amid steady realisations. Hence, lower cost, steady prices and healthy volume will expand the operating margins by 300-350 basis points to 16.5-18.5 per cent this fiscal.
The rebound in profitability comes after a contraction of 620 basis points last fiscal due to higher petcoke and coal prices.