India's cement industry is on track for a major capacity expansion, with an expected increase of 70-75 million metric tonnes (MT) over the next two years. According to ICRA, a leading credit rating agency, this expansion will largely stem from two key areas: approximately 33-37 million MT will come from increasing clinker capacity, while the remaining growth will be derived from enhancing grinding capacity. This expansion is set to take place primarily in the eastern and southern regions of India, which are expected to contribute 38-40 million MT combined in the years FY25 and FY26.

The cement industry’s capacity expansion forecast includes the addition of 33-35 million MT in FY25, which is a slight increase from the 32 million MT added in FY24. Furthermore, the sector is expected to add another 37-39 million MT in FY26. Despite this considerable expansion, ICRA projects that the capacity utilization rates in the cement sector will remain moderate. The utilization rate is expected to improve only slightly to 71% in FY25, compared to 70% in FY24, as the sector contends with moderate demand growth, despite higher production volumes.

A key part of the story is the revised growth forecast for cement volumes in FY25. Initially, ICRA had expected a YoY growth of 7-8%, but the agency has now reduced its forecast to 4-5%, meaning the cement volumes are projected to be 445-450 million MT for the year. This downward revision reflects a slowdown in construction activity, particularly in housing and infrastructure, which decelerated after the general elections. The construction slowdown has put some strain on cement demand in the first half of the year.

However, ICRA predicts that the second half of FY25 will see a rebound in cement demand, particularly in rural areas. This is expected to be driven by improved farm incomes, resulting from a strong monsoon and a good kharif crop output. At the same time, steady urban housing demand should help bolster overall cement consumption in the latter half of the fiscal year.

Despite these factors that may push demand higher in the second half of the fiscal year, profitability in the cement sector remains under pressure. ICRA forecasts that operating profit per tonne (OPBITDA/MT) will decline by 12-15% YoY, with an expected range of US$9.71–10.07 (Rs. 820-850) per metric tonne in FY25. This decline is primarily attributed to rising input costs, as well as pressures from lower selling prices in certain regions, which are affecting margins for cement producers.

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Despite the challenges in profitability, government infrastructure spending is likely to provide some relief in the second half of FY25, which should drive cement demand for large construction projects. However, the overall profitability in the cement sector is expected to remain subdued, reflecting the broader economic challenges that the industry faces in the coming year.

In conclusion, while India's cement industry is set to see substantial capacity growth, it will face moderate demand and profitability pressures in the short term. The expansion of clinker and grinding capacity is a positive long-term sign for the sector, but operating margins may continue to be squeezed by external factors. To explore more on best IPO opportunities, visit our Best IPO to Apply Now page for the latest updates. Also, stay informed with the Top News Headlines to catch up on the latest in business, economy, and share markets.

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