India’s cement industry is poised for a substantial capital expenditure, with an estimated investment of Rs 1.25 lakh crore slated for the financial years FY25 to FY27. This ambitious outlay aims to address the escalating demand and is set to enhance the industry’s cement grinding capacity by 130 million tonnes, equating to approximately 20% of the current capacity.
According to a recent report by CRISIL, this significant investment is driven by a robust demand forecast and the industry’s strategic pursuit of increased market share. The report highlights that despite this surge in capital expenditure, the credit profiles of cement manufacturers are expected to remain stable. This stability is attributed to the industry’s relatively low capital expenditure intensity and the strong balance sheets of the companies, which are projected to maintain financial leverage below 1x due to sustained high profitability. The report notes that the planned capex for the upcoming three fiscal years is 1.8 times higher than the capital expenditure recorded in the previous three years. However, CRISIL Ratings anticipates that the credit risk profiles of the cement companies will remain unaffected due to their continued low capex intensity, which is expected to stay within the range of 0.7 to 0.9 times during FY25-27. This stability is underpinned by a decade-high cement utilisation rate of 70% in FY24, driven by a 10% annualised increase in cement demand over the past three fiscal years.
The analysis covers 20 major cement manufacturers, representing over 80% of the industry’s installed grinding capacity as of March 31, 2024. Manish Gupta, Senior Director and Deputy Chief Ratings Officer at CRISIL, indicated that the cement demand outlook remains robust, with a compound annual growth rate of 7% anticipated from FY25 to FY29. The forthcoming investment will not only meet this growing demand but also bolster the national presence of key players. Leading the industry is UltraTech Cement, a subsidiary of the Aditya Birla Group, which has surpassed 150 million tonnes in installed capacity and aims to exceed 200 million tonnes annually through ongoing expansions. The Adani Group, with its Ambuja Cements and acquisitions including ACC, Sanghi Industries, MyHome Industries, and the recent Penna Cement acquisition, is also a significant player. This acquisition will add 14 million tonnes to Adani’s capacity, bringing its total to 93 million tonnes.
