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India is the second largest cement producer after China; however, its per capita cement consumption is far below compared to world average. Total installed capacity is now 653mtpa (~5% CAGR over FY19-25E) and another 75mtpa would be added over FY24-FY27E. Adani’s entry in the cement space has significantly shot up competition. With larger players vying for market share, the resultant chaos has created considerable pricing pressure. Over the years, we have seen a consolidation spree pervade the industry and needless to say, smaller players have become prime acquisition targets. We reckon the industry will witness more inorganic acquisitions rather than organic expansions. Given that organic expansions have to endure key hurdles linked with land acquisition and environment clearance, it can affect a company’s competitive edge and gaining market share could take significant time. In a sluggish demand environment, volume push through compromised prices is a sticky industry concern. Cement is a cyclical business facing seasonal and regional challenges. The backdrop of intense competition has led to weak pricing, and cement prices have currently dropped to a five year low. Many pockets have attempted a price hike in recent quarters but have had to roll back owing to subdued demand. Given these challenges, we reckon following long term themes are likely to play out: 1). Demand pick-up from mid-FY26E, 2). Narrowing of demand-supply gap in near future, 3). price discipline post consolidation and 4). Cost deflation initiatives.

Demand supply normalization to lead price discipline in near future: We expect sluggish demand in FY25E and flattish to negative y-o-y volume growth for the industry. Having said that, we can expect a demand revival from the mid of FY26E backed by factors like 1). Pick up in infrastructure projects, 2). Revival in rural & urban housing demand, and 3). a real-estate project spree backed by a gradual normalization of the “Demand & Supply” dynamic. We are factoring ~90mt of incremental cement capacity through organic route over FY25-30E. This would take the industry installed capacity to 703mt/ 723mt by the end of FY27E/ FY28E. Beyond this span, capacity addition may happen at a slower pace. We expect gradual improvement in capacity utilization to narrow down the demand/supply gap going forward. Hence, we do not see any over-supply issue. Historically, it’s evident that all India average cement prices were flattish YoY in election year. Post general elections, prices have improved in FY20 to FY23. However, 1HFY25 prices low at the level of five years avg. prices. We believe gradual normalization in demand-supply would usher in price discipline within the industry. In the near term, we don’t expect any significant price hike; we rather foresee stable pricing till the advent of normalization.

Cost optimization amid industry challenges: Cost initiatives are the major key focus area amid industry challenges. Higher usage of green energy, reduction in lead distance, less dependency on international pet-coke and coal, captive coal mining, plant modification, higher blending ratio, strong market reach is among them. Over the years, green energy usage has increased significantly for the industry. Combining all the major cement players in the industry, the total green energy capacity has increased to ~2225MW in 1HFY25 as compared to ~650MW in FY20. While, stable diesel prices, reduction in lead distance, electric truck, own transportation, direct dispatch from factory, warehouse optimization, and own railway sliding for cement/clinker transportations are the key factors and strategies to curtail logistic costs

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