In the report, rating agency Ind-Ra said that the aggressive medium-term capacity targets of leading players are unlikely to be fully achieved organically and the industry is likely to witness an increase in the competitive intensity.
This will also lead to some pricing pressure due to which the gap between leading and small players could continue to widen given the wider presence and better cost efficiencies for large players, India Ratings and Research (Ind-Ra) said. The rating agency said it also expects demand to pick up in the second half of FY 2024-25 and would have an overall volume growth of 5-7 per cent for the fiscal.
The growth would be led by a continued infrastructure push by the government in the Budget where it announced a Capex (capital expenditure) of Rs 11 trillion and growing housing demand, supported by a recovery from the rural market, better monsoon and moderating inflation.
Moreover, the cement companies would also witness an expansion of margins helped by the benign input costs cushion in H2 (October-March), it said. The cement industry had witnessed a "tepid performance" in the first quarter due to general elections and the second quarter is seasonally weak with sequentially lower volumes as the monsoon affect construction activities. However, it also added the pace of growth is likely to moderate from the 9 per cent witnessed in the pre-election year of FY24.
The listed cement companies, which generally account for 88 per cent of the total industry volumes, reported modest volume growth of around 3 per cent YoY in 1QFY25. Capacity utilisation in the June quarter declined to 80 per cent given that the YoY demand growth was in low, single digit while the sector witnessed substantial capacity additions over the last year.
