30/09/2024
The Indian cement sector holds a prominent global position as the second-largest producer, with an annual capacity exceeding 570 MTPA, accounting for over 8% of the global installed capacity. In FY23, cement demand in India reached an estimated 380-385 MTPA, marking an 8-9% increase from the previous year and indicating a capacity utilization of approximately 66.67-67.54%.
Looking ahead, the sector is projected to witness a supply growth of 7% CAGR in FY22-25E, resulting in an installed capacity of around 711 MTPA. Over the past three decades, cement volume has consistently outpaced real GDP growth by 1-1.2 times. However, it is important to note that the excess supply anticipated in FY25E could create pricing pressure and pose challenges for companies to sustain profitability.
The housing sector, a significant consumer of cement, is expected to witness a CAGR of 8-9% in the coming years, driving the demand for cement. Additionally, the government’s substantial investments in infrastructure development, encompassing roads, railways, airports, and power plants, are expected to further boost cement demand.
Leading up to the general election on May-24, the government aims to complete flagship infrastructure projects, stimulating robust demand in FY24E. It is worth considering that historically, post-election periods have witnessed a reduction in government infrastructure spending, which may impact growth expectations for FY25E.
In Q1FY24, demand momentum is expected to sustain during April and May, with a potential softening in June due to monsoons and cyclones affecting specific regions. Notably, the recent 5%-10% increase in the Minimum Support Price (MSP) for Kharif crops is likely to support rural demand. Cement prices, on average, exhibited a change of -1.00/+2.82% YoY/QoQ in Q1FY24. Moreover, pet coke prices experienced a significant YoY/QoQ fall of approximately 34.00/15.00%, while coal prices declined by around 57.42/28.36% YoY/QoQ. Additionally, crude oil prices witnessed a decline of about 30.61/3.94% YoY/QoQ in Q1FY24. These factors are expected to contribute to improved profitability for cement companies in the first quarter, with the eastern region likely to outperform.
In conclusion, the Indian cement sector is poised for growth, driven by increasing demand from the housing sector and government-led infrastructure projects. While the outlook remains positive, the anticipated excess supply in FY25E may pose challenges to profitability. Cement companies need to navigate pricing pressures and ensure sustainable operations amidst changing market dynamics.