A slight recovery is anticipated in the second half of FY25 as the cement industry navigates through a cyclical trough. The demand is undoubtedly slowing down after a strong expansion in FY22 and FY24. Cement consumption in India has historically increased at about 6% in tandem with GDP development. Nonetheless, over the last three years, the industry has experienced a demand CAGR of almost 9%, propelled by robust activity in four important sectors: infrastructure (24%), industrial & commercial (9%), rural housing (37%), and urban housing (30%).
It is anticipated that the industry will report low single-digit volume growth this year, based on the first-half results for FY25. The second quarter has been especially poor, with a negative volume growth predicted. Some factors contributed to this slowdown, including the conclusion of significant infrastructure projects, the disruption of building activity by heavy rains, and decreased spending by the federal and state governments after elections.
However, it is anticipated that catch-up development following the monsoon will drive a recovery in rural demand in the first half of 2025. There may be some respite as government spending is anticipated to increase in H2FY25.
The industry is consolidating more quickly, especially after recent mergers and acquisitions. Over the following three years, it is anticipated that the top four players’ capacity share will increase from 50% to 55–60%.
Although margins are at a decadal low right now, a slight improvement is expected. For nearly a year, cement prices have been falling, with a minor increase in recent months. Due to poor demand, the business has tried several price increases, but only modest increases of 1% to 2% have been realized. Key players’ blended EBITDA per tonne is still close to decade lows, but as fuel prices drop and volumes increase, there is optimism for some margin relief.
Although high valuations may restrict the upside potential, large-cap cement businesses are in a better position than mid-caps. Large-cap companies are better equipped to withstand the current pricing pressures and are probably going to further solidify their leadership due to their robust balance sheets, nationwide presence, well-known brands, and distribution networks. However, the potential for large gains is limited because these companies are selling at high valuations, with EV/EBITDA multiples of 18–20x for FY26 compared to an industry average of about 12x.
