India's cement sector to see only moderate volume growth in next few years

The cement sector is likely to see only a moderate growth in volume at a CAGR of 7 per cent over FY20 to FY 26. It is also expected that the sector will see calibrated capacity additions with supply growth lagging demand over the same period. 

A report from Emkay Global Financial Services points out that there could be only a moderate 5 per cent capacity CAGR. This is due to fairly low utilisation of cement wherein only the top cement players have taken capacity additions with 54 per cent capacity share with the top six players in the country. At the same time, there is also likely unviability of greenfield capacity for the next seven to eight years, even in growth markets of north, central and east India. 

The Emkay report further observes that there might be demand tailwind, but nothing significant over the next few years. Experts at Emkay estimate that there is a possibility of higher infrastructure spending, pick up in rural and semi-urban housing, and urban real-estate due to low interest rates that may spurt the demand of cement in India over the next few years. As the demand for cement grows faster than supply in the foreseeable future, there could be a gradual improvement in capacity utilization levels, but nothing significant when compared to as seen in the past. 

A recent report by Anand Rathi on the latest Q4 results ending March 31, 2021, of the major cement companies of the country points out that a rise in demand had pushed volumes for them. Price hikes had boosted the margins of the major cement players. It was observed that in order to protect their profitability, cement companies passed on their higher costs through price hikes. 

The positive side for the cement majors during the fourth quarter was higher rural (irrigation) demand, demand to complete last-stage projects and various government steps to generate employment that led to improvement in demand for cement. During the last quarter, cement costs were also returning to pre-Covid levels with rising prices of crude oil and diesel. The Anand Rathi report also points out that greater government allocation to infrastructure (to generate employment) and low cost housing projects would give a fillip to demand growth for cement in the urban and rural areas. The report further states that the demand in the sector is poised for a 9 per cent of CAGR over FY21-23. Experts from Anand Rathi, however, also feel that there could be a slowdown in the demand for cement and a rise in pet coke and diesel prices and fall in cement prices in the times to come that could impact the cement sector in India in the near future. 

Market experts point out that the restrictions across the country due to the second wave of the pandemic may slow down construction and infrastructure work further and that may impact the demand for cement in the times to come in the country.