Indian cement industry to add 80 mt cement capacity through FY24

With a healthy growth outlook, the cement industry is stepping up capacity additions, with 80 mt expected over the next three fiscal years, a quarter more than in the previous three fiscals 64 mt. The top ten players will gain market share as they add 70% of new capacity. In addition, lower project risks and funding of this capital expenditure through internal accruals will help them maintain a strong credit profile. Due to a resurgence in infrastructure and housing spending, cement demand is expected to increase by over 10% this fiscal year, after remaining flat the previous fiscal year. The government's increased focus on roads and railways, as well as the resumption of housing construction, will drive cement consumption higher this fiscal year. Given the government's continued focus on infrastructure, the medium-term demand outlook is also positive (through the building of roads, metros and railways). Nearly 68% of the 19.5 million affordable housing units targeted under PMAY-R have yet to be built (as of this fiscal year), and cement demand is expected to rise as these units are built over the next two to three fiscal years. The capacity addition will be skewed, with nearly 45 to 47 mt added in the eastern and central regions, owing to these regions' strong demand scenarios and higher current utilisations of 72%. In comparison, due to excess supply and lower utilisation levels of 54%, the south is only expected to add 6 to 7 mt. Nearly 60% of the new capacity will be brownfield, meaning enhancements at the same location, lowering capital costs by 40 to 50% to Rs 4,100 to 4,600 per tonne and overall costs to around Rs 25,000 to 26,000 crore for the top ten players. This will also result in better absorption of fixed costs such as manpower, common infrastructure, and overheads, as well as a reduction in the risks associated with land acquisition, regulatory approvals, and implementation. By March 31, nearly Rs 5,500 to 5,600 crore had been spent out of the total budget. Internal cash accruals of at least Rs 50,000 crore are expected to be generated over the next three fiscal years to cover the shortfall. These companies' Capex plans are also supported by sustained cash liquidity of more than Rs 30,000 crore as of March. Overall, according to CRISIL, with no material increase in debt, these players' credit profiles will remain strong. Furthermore, by fiscal 2024, six of the top ten players are expected to be debt-free, compared to four at the end of fiscal 2021. Image Source Also read: Cement manufacturers eye expansion in eastern India