By Mahesh Patil
The cement industry is navigating through a cyclical bottom, with expectations of a modest recovery in the second half of FY25. After a robust growth from FY22 to FY24, the demand is certainly moderating. Historically, India’s cement consumption has mirrored the GDP growth at around 6%. However, the industry saw a demand CAGR of approximately 9% over the past three years, driven by strong activity in key sectors: Rural housing (37%), urban housing (30%), infrastructure (24%) and industrial & commercial (9%).
Based on the first half results for FY25, the industry is expected to report a low single-digit volume growth this year. The second quarter has been particularly weak, with an anticipated negative volume growth. This slowdown can be attributed to a combination of factors, including reduced spending by both the state and central governments following elections, completion of major infrastructure projects and heavy rains disrupting construction activities.
However, rural demand is expected to recover in the first half of calendar year 2025, spurred by catch-up in construction after monsoon. Government spending is also expected to rebound in H2FY25, providing some relief.
In terms of capacity growth, the industry is expected to expand at an 8% CAGR from FY24 to FY27, outpacing the long-term demand growth of 6%. Approximately, 70% of this new capacity will come from the top four players. However, without a meaningful recovery in demand, industry-wide capacity utilisation —currently at around 68% — is likely to decline further.
Consolidation in the industry is accelerating, particularly in the wake of recent mergers and acquisitions. The top four players’ share of capacity is projected to rise from 50% to 55-60% over the next three years.
Margins are currently at a decadal low, but a modest recovery is anticipated. Cement prices have been declining for almost a year, with a slight uptick in recent months. While the industry has attempted multiple price hikes, only minor increases of 1-2% have been realised due to weak demand. Blended EBITDA per tonne for key players remains near decade lows, but there is hope for some margin relief as fuel prices decrease and volumes improve.
However, the broader demand environment remains fragile, and pricing power is limited due to an intense competition for market share among industry leaders. Additionally, the introduction of new supply from recently transacted stressed assets is likely to keep pricing and margins from recovering significantly in the near term.
In our view, large-cap cement companies are more favorably placed than mid-caps, although high valuations may limit the upside potential. Large-cap players, with their strong balance sheets, national presence, well-established brands and distribution networks, are better positioned to weather current pricing pressures and are likely to further consolidate their leadership. However, these companies are trading at high valuations, with EV/EBITDA multiples of 18-20x for FY26, compared to an industry average of around 12x, limiting the scope for significant returns.
The author is CIO at Aditya Birla Sun Life AMC,
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From: financialexpress
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