India's cement sector to see highest capacity addition since FY10
Anticipated 45M tonnes addition signals highest growth since FY10, fueled by expansion and acquisitions, amid fierce market competition
By : Sangeetha G
Update: 2024-05-09 12:20 GMT
Chennai:The cement sector is expected to see around 45 million tonnes of capacity come on stream in FY25. This will be the highest capacity addition since FY10.
The cement sector is witnessing capex announcements in anticipation of the medium-term demand growth and market share gains. Around 75 per cent of the announced expansion of around 160 million tonnes is likely to come on stream over FY24-FY26. Of this, around 45 million tonnes of capacity is likely to come on stream in FY25 and this will be highest since the addition of 60 million tonnes in FY10.
Last fiscal also witnessed multiple acquisition announcements, totaling around 20 million tonnes of cement capacity, with the top two players accounting for the bulk of them. Increasing consolidation is expected in the sector, given the intensifying competition for market share.
The sector is likely to witness further consolidation in the near-to-medium term, given that the aggressive medium-term capacity targets of large players are unlikely to be achieved organically with the available resources and a widening gap between leading and small players amid likely pricing pressure. Given the high fragmentation and a large number of small-to-mid-sized players, the southern market still offers a high potential for inorganic expansion followed by the western region.
Despite the capacity addition both organically and inorganically, the three-year supply CAGR of 7 per cent would be slightly lower than the likely demand CAGR of 8 per cent over FY23-FY25. The capacity utilisations are expected to remain in the range of 67-68 per cent. North is likely to witness capacity utilisations of around 80 per cent utilisations and strong profits. In central India, the large supply pipeline is likely to weigh on the otherwise strong utilisations over the near term, while the West could witness an improvement. With a sizable addition in the high-growth potential eastern region, utilisations would remain subdued while the southern region would remain at the bottom.
The cement sector is witnessing capex announcements in anticipation of the medium-term demand growth and market share gains. Around 75 per cent of the announced expansion of around 160 million tonnes is likely to come on stream over FY24-FY26. Of this, around 45 million tonnes of capacity is likely to come on stream in FY25 and this will be highest since the addition of 60 million tonnes in FY10.
Last fiscal also witnessed multiple acquisition announcements, totaling around 20 million tonnes of cement capacity, with the top two players accounting for the bulk of them. Increasing consolidation is expected in the sector, given the intensifying competition for market share.
The sector is likely to witness further consolidation in the near-to-medium term, given that the aggressive medium-term capacity targets of large players are unlikely to be achieved organically with the available resources and a widening gap between leading and small players amid likely pricing pressure. Given the high fragmentation and a large number of small-to-mid-sized players, the southern market still offers a high potential for inorganic expansion followed by the western region.
Despite the capacity addition both organically and inorganically, the three-year supply CAGR of 7 per cent would be slightly lower than the likely demand CAGR of 8 per cent over FY23-FY25. The capacity utilisations are expected to remain in the range of 67-68 per cent. North is likely to witness capacity utilisations of around 80 per cent utilisations and strong profits. In central India, the large supply pipeline is likely to weigh on the otherwise strong utilisations over the near term, while the West could witness an improvement. With a sizable addition in the high-growth potential eastern region, utilisations would remain subdued while the southern region would remain at the bottom.