Cement Industry Set For Further Consolidation In Near-To-Medium Term: Report

The rating agency said it also expects demand to pick up in the second half of fiscal 2024-25 and would have an overall volume growth of 5-7% for the fiscal.

PTI

(Source: Freepik)

The Indian cement industry, which is witnessing aggressive acquisitions by two of its leading players - Adani group's Ambuja Cement and Aditya Birla's UltraTech, will have further consolidation in the near-to-medium term, according to a report.

In the report, rating agency Ind-Ra said that the aggressive medium-term capacity targets of leading players are unlikely to be fully achieved organically and the industry is likely to witness an increase in the competitive intensity.

This will also lead to some pricing pressure due to which the gap between leading and small players could continue to widen given the wider presence and better cost efficiencies for large players, India Ratings and Research (Ind-Ra) said.

"Ind-Ra expects the cement sector to witness further consolidation in the near-to-medium term, given the aggressive medium-term capacity targets of leading players that are unlikely to be fully achieved organically," the report said.

The rating agency said it also expects demand to pick up in the second half of fiscal 2024-25 and would have an overall volume growth of 5-7% for the fiscal.

The growth would be led by a continued infrastructure push by the government in the Budget where it announced a Capex of Rs 11 lakh crore and growing housing demand, supported by a recovery from the rural market, better monsoon and moderating inflation.

Also Read: Cement Sector Check - H2 FY25 To Witness Revival In Demand: Nirmal Bang

Moreover, the cement companies would also witness an expansion of margins helped by the benign input costs cushion in H2 (October-March), it said.

The cement industry had witnessed a 'tepid performance' in the first quarter due to general elections and the second quarter is seasonally weak with sequentially lower volumes as the monsoon affect construction activities.

"Ind-Ra believes demand is likely to pick up in 2H with cement volumes growing 5-7% year-on-year in fiscal 2024-25, led by continued infrastructure creation with 17% year-on-year growth in capex budget to Rs 11.1 trillion and a healthy housing demand, supported by a recovery in the rural segment with a better monsoon and moderating inflation," it said.

However, it also added the pace of growth is likely to moderate from the 9% witnessed in the pre-election year of fiscal 2023-24.

The listed cement companies, which generally account for 88% of the total industry volumes, reported modest volume growth of around 3% year-on-year in Q1FY25.

Capacity utilisation in the June quarter declined to 80% given that the year-on-year demand growth was in low, single digit while the sector witnessed substantial capacity additions over the last year.

"2Q typically witnesses a fall in utilisations after which it is likely to pick up in 2H. With the large expansion pipeline, Ind-Ra believes industry utilisations could reduce marginally in FY25. Around 7 million tonnes (mnt) of capacity came onstream in 1QFY25 and another 42mnt is planned over July 2024-March 2025, of which around 80% may come onstream," it said.

Also Read: Cement Sector Check - Sustaining On The Edge, And Price Hike Dilemma: Yes Securities

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