Bengaluru: The Indian cement industry is bracing for slower growth in FY2025, with volumes expected to rise by 4-5% year-on-year (YoY) to reach 445-450 million metric tons (MT), according to a new report by ICRA . This marks a notable adjustment from the earlier projection of 7-8% growth made in July 2024. The revision reflects a slower-than-expected recovery in construction activity across the housing and infrastructure sectors post-General Elections. The muted growth trend was evident in the first half of FY2025 (H1 FY2025), where cement volumes increased by only 2% YoY to 212 million MT. Election-related disruptions in Q1 FY2025 and heavy monsoon rains in Q2 FY2025 were significant contributors to this slowdown. However, the industry is optimistic about a stronger second half (H2 FY2025), driven by an anticipated boost in rural and urban housing demand, alongside a pick-up in infrastructure spending. “The operating performance of the cement companies to improve from Q3 FY2025 onwards, supported by the likely price hikes, uptick in cement volumes aided by increased Government spending on infrastructure projects, pick-up in construction activities, and stable input cost pressures – primarily pertaining to power and fuel,” said Tushar Bharambe, Assistant Vice President and Sector Head, Corporate Ratings, ICRA. ICRA’s analysis highlights several factors expected to support rural housing demand in H2 FY2025, including improved farm cash flows from a robust monsoon season, strong kharif output, and high reservoir levels benefiting rabi crop sowing. In urban areas, sustained demand for housing is likely to complement this growth. The infrastructure segment is also expected to rebound. While the Government of India’s capital expenditure was subdued in H1 FY2025 at Rs 4 trillion—a 19% YoY contraction—the revised budget estimate for FY2025 stands at ?11.1 trillion. With significant room for spending in H2 FY2025, the government’s focus on infrastructure projects could provide a much-needed boost to cement demand. 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Average cement prices declined by 10% YoY to ?330 per bag in H1 FY2025, owing to subdued demand and market oversupply. Lower sales realizations were partly offset by a decline in coal and pet coke costs, which fell 38% and 13% YoY, respectively. Even so, the profitability of cement companies has taken a hit. The operating profit per ton (OPBDITA/MT) for ICRA’s sample set dropped 19% YoY to ?722 in H1 FY2025. Operating margins also contracted by 375 basis points to 12% in Q2 FY2025. ICRA projects that while operating performance is likely to improve in H2 FY2025, driven by anticipated price hikes, higher volumes, and stable input costs, full-year profitability will remain under pressure. For FY2025, OPBDITA/MT is expected to decline by 12-15% YoY to ?820-850, with operating margins narrowing to 15.6-16.1%, down from 17.4% in FY2024. The Indian cement industry is expected to add 70-75 million MT of capacity during FY2025-FY2026, including 33-37 million MT of clinker capacity. In FY2025 alone, 33-35 million MT is likely to come online, building on the 32 million MT added in FY2024. The eastern and southern regions are poised to lead this expansion, contributing nearly 40 million MT of new capacity over two years. Despite these additions, the capacity utilisation is estimated to remain moderate at 70% in FY2025 on an expanded base (FY2024: 70%). “Despite the likely improvement in H2 FY2025, the OPBITDA/MT of the cement companies in ICRA’s sample set is estimated to remain under pressure for the full year FY2025, declining by 12-15% on a YoY basis to Rs 820-850/MT. ICRA’s revised estimate of OPBDITA/MT is lower by Rs 150-180 /MT compared to its earlier forecast of Rs 975-1000/MT released in July 2024. Consequently, the operating profit margins for FY2025 are likely to ease by 130-180 bps to 15.6-16.1% from 17.4% in FY2024,” he said. Industry experts believes that as India’s construction sector works to regain momentum, the cement industry will play a critical role in supporting infrastructure and housing growth, albeit under challenging market conditions. Nominations for ET MSME Awards are now open. The last day to apply is November 30, 2024. Click here to submit your entry for any one or more of the 22 categories and stand a chance to win a prestigious award. (You can now subscribe to our Economic Times WhatsApp channel) (You can now subscribe to our Economic Times WhatsApp channel)
