Cement Companies to Add 145-155 Mt Capacity by FY27
Cement companies are expected to go on an expansion spree, and add 145-155 MT capacity between FY 2023 and 2027. That translates to a 4-5 per cent compound annual growth rate on a high base. A robust 6-7 per cent CAGR expected in demand over these five fiscals will encourage the growth in supply. With 570 million tonnes (mt) of installed capacity, India is the world's second-largest cement producer after China. Between FY12 and FY23, the installed capacity grew by 61 per cent to 570 MT from 353 MT in FY12 -- a net addition of 217 MT from 2013 to 2022 and FY22 saw the highest capacity addition of 34 MT. The expected 145-155 MT of fresh capacity addition will entail a likely capex of Rs 1.2 lakh crore, with large producers accounting for more than half of the spending. They will be able to fund the capex through internal accruals, with comfortable gearing, giving them the financial flexibility to raise debt. Given the strong demand outlook and acquisition of most of the smaller and financially weak companies, large producers are now focusing on organic growth. The top 5 will drive a lion's share of incremental capacity addition over the medium term. Cement makers have been adding substantial capacity in the past too. In the five fiscals through 2017, around 108 MT were added, while in the next five fiscals through 2022, 109 MT were added despite pandemic-induced disruptions. On the balance-sheet side, healthy post-pandemic demand recovery and strong profitability helped producers deleverage. Capex plans, which were on hold or delayed due to the pandemic, restarted in the latter half of fiscal 2021. However, the capacity addition drive to peter off fiscal 2023 and moderate to 30-32 MT, inclusive of grinding and integrated units, as higher input cost has hit their profitability, leading to slowing capex. And fiscal 2024 also looks tepid with an addition of only 30-32 MT. That is because policies may change because of general elections. But once the hustings are over, capacity addition to gather pace, supported by the rising demand amid a growing population and the government's infrastructure thrust. Also, the gap in the share of capacity addition between large and mid-sized producers widened sharply during this period -- the former's share bulged to 76 per cent from 41 per cent, including organic and inorganic expansions. On the other hand, the latter's contracted to 19 per cent from 50 per cent, and their share of the capacity mix dwindled from 44 per cent to 39 per cent in fiscal 2022. Large players include Ultratech Cement, Adani Cement (ACC & Ambuja), Dalmia Bharat, and Shree Cement. The capacity augmentation push will be driven by grinding units. Being logistics-oriented, the cement industry has preferred to install more grinding units nearer consumption centres in the past decade for better market reach and freight cost rationalisation.