New Delhi, March 7, 2025: India Ratings and Research (Ind-Ra) has recently released a statement on its outlook for cement sector for FY26. The findings indicate a Neutral Outlook for the overall cement sector for FY26, reflecting steady demand growth, stable input costs, and robust balance sheets.
However, the agency has for the first time differentiated between large (tier 1) and smaller (tier 2) players. While tier 1 companies—those with capacities exceeding 15 million tonnes and a diversified geographic footprint—are poised for moderate growth, tier 2 players face a deteriorating outlook amid weakening volumes and profitability pressures.
Ind-Ra’s analysis indicates that tier 1 players are likely to experience growth in FY25, bolstered by their strong market positions and cost efficiencies. In contrast, tier 2 companies could see their profitability fall by around 40% from long-term averages, compared to a 20%-25% dip among tier 1 peers. This widening performance gap is expected to persist over the near- to medium term as the sector grapples with a weak pricing environment and intense competition driven by a massive capex pipeline.
Demand Growth and Economic Drivers
The agency forecasts mid-single-digit demand growth for cement in FY26. Key drivers include:
- Infrastructure Revival: A rebound in infrastructure demand post-general elections is anticipated.
- Rural Demand Resurgence: An improvement in real wage growth among lower-income groups is expected to boost rural construction.
- Urban Housing: Although urban housing growth is projected to moderate due to base effects, it will continue to contribute positively.
With real GDP growth estimated at 6.5% in FY26, the cement demand-to-GDP multiplier is predicted to recover to 0.8x—up from 0.6x in FY25—although still marginally below the long-term average of 0.9x. Notably, FY25 is expected to record a 4% demand growth, the weakest pace since FY21, largely due to subdued infrastructure spending in early quarters.
Capacity Expansion and Regional Utilization
The sector is set for decadal-high capacity additions, with planned expansions of about 160 million tonnes over FY25-FY27 on a base of approximately 615 million tonnes in FY24. However, only 75%-80% of these expansions are expected to come online due to potential delays in clearances, equipment logistics, and financial constraints, particularly for mid-sized players. As a result, capacity utilization is forecast to remain range-bound at around 67%-68% in FY25-FY26—slightly lower than the 69%-70% observed in FY24.
Regional dynamics further complicate the outlook:
- North India: Expected to maintain the highest utilization levels despite some moderation.
- West India: Likely to see improved utilization driven by demand growth and limited new capacity.
- East and South India: May experience weaker utilization due to oversupply, with southern markets projected to operate around 60% capacity.
Consolidation and Pricing Pressures
The sector continues to witness significant consolidation. FY25 saw acquisition announcements totaling over 40 million tonnes of cement capacity, with over 85% executed by the top two players. This consolidation trend is likely to intensify, leading to increased market share for the top five and top ten players, potentially pushing the top ten’s share to 78% by FYE25.
Pricing pressures remain a central challenge. After a historic year-on-year price drop of around 7% in 11MFY25, a weak pricing environment is expected to persist into FY26 as companies focus on volume growth amid rising capacities. Although sequential improvements have been observed, overall prices remain subdued compared to previous years.
Looking Ahead
In conclusion, Ind-Ra’s analysis paints a picture of a sector with resilient fundamentals yet marked by divergent fortunes between large and small players. Tier 1 companies appear well-equipped to navigate the competitive landscape with strong operational profiles, while tier 2 players face significant headwinds from falling volumes, tighter margins, and diminishing liquidity. As the cement sector braces for a new era of capacity expansions and continued consolidation, industry stakeholders will need to closely monitor regional trends, pricing dynamics, and execution of capex plans to gauge the medium-term outlook.
