By Mahesh Patil

The cement industry is navigating through a cyclical low with modest recovery expected in the second half of FY25. After robust growth from FY22 to FY24, demand is definitely moderating. Historically, Indiacement consumption reflected GDP growth of around 6%. However, the industry has seen a demand CAGR of around 9% over the past three years, driven by strong activity in key sectors: rural housing (37%), urban housing (30%), infrastructure (24%) and industrial and commercial (9%).

Based on first-half results for FY25, the industry is expected to report low single-digit volume growth this year. The second quarter was particularly weak, with negative anticipated volume growth. This slowdown can be attributed to a combination of factors, including spending cuts by both state and central governments following the elections, completion of major infrastructure projects and heavy rains disrupting construction activities.

However, rural demand is expected to pick up in the first half of calendar year 2025, boosted by post-monsoon construction catch-up. Government spending is also expected to pick up in S2FY25, providing some relief.

In terms of capacity growth, the industry is expected to expand at 8% CAGR from FY24 to FY27, outpacing long-term demand growth of 6%. Roughly 70% of this new capacity will come from the top four players. However, without a significant recovery in demand, industry-wide capacity utilization – currently at around 68% – is likely to decline further.

Consolidation in the industry is accelerating, particularly as a result of recent mergers and acquisitions. The capacity share of the top four players is expected to increase from 50% to 55-60% in the next three years.

Margins are currently at a decade low, but a modest recovery is anticipated. Cement prices have been falling for almost a year, with a slight increase in recent months. While the industry has tried several price increases, only minor increases of 1-2% have been achieved due to weak demand. Combined EBITDA per tonne for key players remains near decade lows, but there are hopes for some margin reduction as fuel prices fall and volumes improve.

However, the broader demand environment remains fragile and pricing power is limited due to intense competition for market share among industry leaders. In addition, the introduction of new bids from recently traded stressed assets may prevent a significant recovery in prices and spreads in the near term.

In our view, large-cap cement companies are more favorably placed than mid-caps, although high valuations may limit upside potential. Large-cap players, with their strong balance sheets, national presence, well-established brands and distribution networks, are better positioned to withstand current pricing pressures and are likely to consolidate their leadership further. However, these companies trade at high valuations, with age/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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