New Delhi [India], October 14 (ANI): The growth rate for cement demand in India is expected to moderate to 7-8 per cent on-year, reaching approximately 475 million tonnes (MT) in the current fiscal year, according to a recent report by CRISIL Ratings.
This marks a slowdown following a compound annual growth rate of around 11 per cent between fiscals 2022 and 2024. Despite the tempered growth, the operating profitability of cement companies is anticipated to remain stable at Rs 975-1,000 per tonne, which is above the decadal average of Rs 963 per tonne.
The first quarter of this fiscal saw cement demand increase by only 3 per cent, attributed to an extended heatwave and labor shortages during the general elections. A similar growth pattern is estimated for the second quarter due to seasonal factors.
A rebound in rural housing demand, supported by a healthy monsoon, is expected to drive growth in the housing segment, which constitutes 55-60 per cent of cement demand.
Additionally, government spending on infrastructure development, which accounts for approximately 30 per cent of cement demand, is likely to bolster demand.
Although infrastructure spending had been sluggish until July, a significant acceleration in government capital expenditure is anticipated from the third quarter onwards, which will further support cement demand growth.
Sehul Bhatt, Director of Research at CRISIL Market Intelligence and Analytics, said, “Cement demand is expected to rebound in the second half of this fiscal (which typically accounts for more than half of the annual sales), as construction activity gathers pace across infrastructure and housing segments post-monsoon.”
Bhatt added, “Healthy monsoon, improved labour availability after the festive season, and pick-up in government spending on infrastructure and housing (under the Pradhan Mantri Awas Yojana) should drive demand up 9-11 per cent in the second half, taking the annual growth tally to 7-8 per cent.”
While cement prices experienced a significant on-year decline of approximately 6 per cent in the first half of this fiscal, operating profitability is expected to remain stable due to declining power and fuel costs, which make up around 30 per cent of the total production cost.
Ankit Kedia, Director at CRISIL Ratings, stated, “Operating leverage benefit of ~Rs 30 per tonne is also expected as volume growth has been in sync with the pace of capacity addition thereby keeping the utilisation3 levels strong.”
However, the report also cautioned that any downturn in construction activity or reduced infrastructure spending could negatively impact the cement demand outlook.
Additionally, fluctuations in commodity and energy prices due to geopolitical events, or the inability of cement players to implement price hikes, could pose risks to profitability expectations. (ANI)
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