As much as 70 to 75 tonnes of capacity is expected to be added in the next fiscal, with 50 to 55 percent concentrated in the eastern and central regions.
To capitalize on rising demand from the infrastructure and housing sectors, the cement industry is on track to expand capacity by 150-160 million tonnes between FY25 and FY28, a report said on Tuesday.
According to a report by Crisil Ratings, the sector has increased capacity by 119 million tonnes (MT) per annum in the last five fiscal years, reaching a total of 595 MT.
The capacity expansion is aimed at meeting rising demand and consolidating market share in a highly fragmented and competitive industry, the report said.
Cement demand grew 8 percent in FY22 and 12 percent in FY23.
As much as 70 to 75 tonnes of capacity is expected to be added in the next fiscal, with 50 to 55 percent concentrated in the eastern and central regions.
Major players will account for 50 to 55 percent of the planned capacity expansion, the report said. However, the addition of greater supply and stronger competition will slow price growth, but favorable costs will protect and support margins.
Robust demand in the last two fiscals has strengthened the balance sheets of major cement players and some mid-market players with strong market presence, prompting them to expand their capacity on the back of healthy cash growth and credit profile.
This fiscal demand is expected to grow by 10 to 12 percent, driven by the government’s push for affordable housing and infrastructure spending in the run-up to the elections. That said, increasing supply and increased competition will limit price growth to 0-1 percent, keeping prices at Rs 390-395 per 50 kg bag, and utilization at 70-75 percent.
In the next fiscal, demand growth is expected to moderate to 4-6 percent, at high levels seen in the previous three fiscals. Also, rising raw material costs and a flat base will lead to a price increase of 1-3 percent to Rs 400-405 per 50 kg bag, the report said.
According to Miren Lodha, director of the agency, cement prices have fallen by 1 percent in the first three quarters of the current fiscal. of 4 percent.
With capacity increasing by 35 to 40 tonnes this fiscal, the highest in more than a decade, and acquired capacity being ramped up, a significant increase in supply will test market discipline and limit price rise to just 0 to 1 percent . warned.
According to Sehul Bhatt, deputy director at the agency, the relaxation in power, fuel and freight charges, which account for 50 percent of the total production costs, has given manufacturers a respite amid the steady realizations. Lower costs, stable prices and healthy volume will therefore increase operating margins by 300 to 350 basis points to 16.5 to 18.5 percent this fiscal.
The recovery in profitability comes after a contraction of 620 basis points last fiscal due to higher petcoke and coal prices.
(Only the headline and image of this report may have been reworked by Business Standard staff; the rest of the content is automatically generated from a syndicated feed.)
First print: January 23, 2024 | 3:48 PM IST