Cement Industry Growth Slows as Demand Remains Tepid

The Indian cement industry is projected to witness a subdued growth rate of 4-5% in FY25, reaching an estimated 445-450 million tonnes, according to ICRA. This marks a downward revision from the earlier forecast of 7-8% made in July 2023, as slower construction activity and a muted demand environment weigh on the sector.

In the first half of FY25, all-India cement volumes rose marginally by 2% year-on-year to 212 million tonnes. The growth was hindered by the General Elections in the first quarter, followed by heavy monsoon rains in the second quarter. The operating profit margins for the sector contracted by 375 basis points to 12% in Q2 FY25, with a broader decline to 14% for the first half of the fiscal year, as oversupply and sluggish demand kept realisations under pressure. Cement prices also declined by 10% YoY to an average of ₹330 per bag in H1 FY25. This drop in prices was only partially offset by a moderation in input costs, as coal and pet coke prices fell by 38% and 13%, respectively, during the same period.

Looking ahead, demand recovery is expected in the second half, driven by robust rural consumption due to healthy kharif output and increased reservoir levels aiding the rabi crop. Urban housing demand remains strong, while government infrastructure spending, projected to ramp up significantly to meet revised fiscal targets, is likely to provide further impetus. ICRA forecasts the industry’s capacity addition at 70-75 million tonnes during FY25-26, with the eastern and southern regions leading the expansion. Capacity utilisation, however, is expected to stay moderate at 71%, slightly improving from 70% in FY24, as new capacities come online. Despite challenges, the cement sector is cautiously optimistic about H2 FY25, backed by potential government spending and improving rural and urban demand dynamics.