Investment Information and Credit Rating Agency (ICRA) expects cement volumes to rise by a healthy 7 to 8 per cent year-on-year (YoY) in FY 2025, driven by sustained healthy demand from the infrastructure and housing sectors. ICRA assesses the growth in Q1 FY 2025 to have been muted at 2-3 percent YoY due to a slowdown in construction activity because of the general elections. Nevertheless, the government’s focus on infrastructure projects, sanction of additional houses under the Pradhan Mantri Awas Yojana (PMAY), and the industrial capex are expected to meaningfully improve cement volume offtake in H2 FY 2025.
Giving more insights, Anupama Reddy, Vice President and Co-Group Head, Corporate Ratings, ICRA, commented: “The operating income for ICRA’s sample set 1 is expected to witness an expansion of 7 to 8 per cent YoY in FY 2025, primarily driven by volumetric growth. While the cement prices are projected to largely sustain at previous year levels, some softening of cost-side pressures, primarily power and fuel costs along with an increasing focus on green power, is likely to result in an improvement in OPBITDA/MT2 by 1 to 3 percent YoY to Rs 975- 1,000/MT.”
“Yearly trends in cement volumes”
ICRA estimates the capacity addition in the cement industry at 63 to 70 million metric tonnes (mt) during FY 2025 to FY 2026, of which around 33 to 35 million mt will be added in FY 2025 (FY 2024: 32 million mt), supported by healthy demand prospects. The eastern and southern regions are forecast to lead the expansion. The capacity utilisation is expected to rise to 71 per cent in FY 2025 from 70 per cent in FY2024, backed by higher cement volumes; however, the utilisation remains moderate, on an expanded base. Although the debt dependence is projected to remain high to fund the ongoing capex programme, ICRA expects the credit profile of cement producers to remain stable, driven by healthy growth in operating income, anticipated improvement in operating margins, comfortable leverage and coverage metrics,” Reddy added.
While organic growth is expected to continue in the medium term, cement companies are also preferring the inorganic route to boost capacities rapidly. ICRA estimates that the market share of the top five cement companies witnessed a steep rise to 54 per cent as of March 2024 from 45 per cent as of March 2015, and projects it to further increase to 58 to 59 per cent by March 2026, resulting in consolidation in the cement industry.