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According to CareEdge Ratings, the demand growth rate of Cement Sector is expected to moderate to 5-6% in FY25 from earlier highs of 8-9%, primarily due to the high base effect and softer demand observed so far.

The cement sector has encountered several headwinds recently, collectively contributing to subdued offtake during the first half of this fiscal year. In the first half of the FY25, the cement demand has relatively been stagnant across the industry, influenced by the impact of general elections, extended monsoon season, and the sluggishness in infrastructural activities. In the recent months of October and November, the sluggishness in cement demand growth was influenced by the festive season and the current construction ban in the northern region.

However, CareEdge ratings anticipates demand to rise starting December to achieve a full year 5-6% growth in demand. Though, it’s a noticeable slowdown against the previous years as the cement sector has seen exceptional growth from FY22 to FY24 with cement sales volume growing at a CAGR of 13.4% primarily driven by a pickup in housing, pre-election, and thrust for infrastructure as well as low base effect due to adverse impact from COVID-19.

For FY25, CareEdge Ratings projects a GDP growth rate between 6.5 to 7%, with an anticipated cement demand to GDP multiplier of 0.7x. This ratio is expected to return to 1x as we move forward and demand gaze momentum. In long-term, CareEdge Ratings projects a 6.8-7.2% compound annual growth rate (CAGR) for cement demand and 5-6% in Capacity Growth between FY25 to FY30 period. It expects government spending to increase over the next four months and significant growth momentum to resume by FY26, with a much stronger pace of development.

Sabyasachi Majumdar, Senior Director, CareEdge Ratings said, “Despite challenges, the cement sector outlook remains optimistic as long-term demand remains robust. While FY25 is seeing slow growth and subdued government spending, we maintain a long-term outlook aligned with India's broader growth strategy with housing, continuing to be primary driver of cement demand, or so, the bedrock of the industry”.

Approximately 55 to 60 % of the total cement demand comes from the housing sector, while infrastructure contributes around 30 % and the remainder comes from the industrial segment. This distribution, however, has evolved over time. CareEdge Ratings anticipate that infra share will further increase to 33 to 34% in the coming years due to the government's strong infra push and increased budget allocations.

“We expect both sales and launches to continue to remain robust, supported by urbanization, rising income levels, and significant infrastructure development across the country. Additionally, central and state government-backed infrastructure projects are significantly enhancing connectivity and accessibility, leading to emergence of new real estate development zones. Government initiatives such as RERA, Pradhan Mantri Avas Yojana, and the Special Window for Affordable and Mid-Income Housing Fund have improved supply and affordability, boosting demand. Furthermore, under the GRAMEEN scheme, additional 20 million houses have been planned, bringing the total target to 49.5 million over the next five years, out of which 32.1 million have already been sanctioned. This continued development is poised to maintain momentum for cement demand from housing segment moving forward”, added Sabyasachi Majumdar.

 Infrastructure is set to expand its share over the next five years, driven by the government's focus on flagship schemes like PM Gati Shakti and increased investments in roads, railways, metros, airports, and irrigation. Herein, the roads are expected to see the highest traction. The set target under Phase 1 of the Bharat Mala Project is 34,800 kilometers, out of which up till March 31st, 2024, only 50% has been achieved, indicating that larger part of demand is expected to materialize in the second half of this fiscal and in FY26. Given the pace of execution in the last two fiscals, the target completion date has also been extended to 2028.

CareEdge Ratings believes that going forward, the increase in infra outlay is expected to have a multiplier effect across sectors and set a strong footing for growth and shall keep supporting volumes in cement sector as well.

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