The Indian cement industry is poised for a significant expansion phase, with a leading rating agency forecasting steady volume growth and massive capacity additions over the next few years. According to a recent analysis by ICRA, cement volumes in the country are expected to grow at a compound annual growth rate (CAGR) of 6-7% until the fiscal year 2027. This growth trajectory is set against a backdrop of robust demand from key sectors.
Substantial Capacity Expansion on the Horizon
To meet this rising demand, the industry is gearing up for a major capacity augmentation. ICRA estimates that the cement sector will add a substantial 85-90 million tonnes per annum (MTPA) of capacity between the fiscal years 2025 and 2027. This expansion represents an increase of approximately 14-15% over the existing base, signaling strong investor confidence and long-term bullishness on the market's fundamentals.
The agency notes that the majority of this new capacity is being planned in the regions of East, Central, and North India. This geographical focus aligns with the areas witnessing faster growth in demand and also offers better availability of key raw materials like limestone, which is crucial for production.
Demand Drivers and Cost Pressures
The projected growth is underpinned by several powerful demand drivers. Infrastructure development, propelled by continued government spending on roads, railways, and urban development projects, remains a primary pillar. Concurrently, a healthy housing sector, encompassing both urban housing and rural demand, continues to consume large volumes of cement.
However, the industry is not without its challenges. ICRA points out that profitability for cement manufacturers could face headwinds due to elevated power and fuel costs. The prices of critical inputs like petroleum coke and coal have remained volatile and high, putting pressure on operational margins. The industry's ability to manage these costs through operational efficiencies and partial price pass-through to consumers will be critical.
Outlook and Industry Resilience
Despite cost-related challenges, the overall outlook for the Indian cement sector remains positive. The anticipated volume growth and capacity expansion reflect a deep-seated optimism about the country's economic and construction activity. The industry's capacity utilization is expected to see a moderate improvement, supported by the steady growth in consumption.
This phase of expansion is also likely to intensify competition, particularly in the regions where new capacities are being concentrated. Larger players with strong balance sheets and pan-India presence are well-positioned to fund and execute these expansion plans, potentially leading to further market consolidation.
In summary, the Indian cement industry stands at the cusp of a high-growth period fueled by infrastructure and housing. While navigating cost inflation is a near-term task, the strategic capacity additions forecasted by ICRA highlight the sector's preparedness to build the foundation for India's future growth over the next decade.
