Early onset of monsoon likely to impact cement demand: India Ratings and Research
India Ratings and Research in its latest report has indicated that early onset of monsoon may impact the cement demand which grew 7 percent year-on-year in April this year. However, it expects the overall cement demand to grow in single digits in the June quarter on the weak base a year ago due to general elections. Besides, the report has highlighted that the notable recovery of 10-11 per cent y-o-y made by the cement volume in the March 2025 quarter was driven by an 11 percent y-o-y pick-up in infrastructure to Rs 10.5 trillion, led by the central government capex after a similar y-o-y decline in 8M FY25.
Despite this late recovery, the report noted that the weak H1 restricted the overall demand growth for FY25 to 5 to 6 percent, which is the lowest since the pandemic affected FY21. Moreover, price hikes also aided the manufacturers in improving sales realisations in Q1 FY26 after a multi-decadal fall last fiscal. Cement players took multiple price hikes in April-May 2025, propelling y-o-y growth in prices after five quarters despite some rollbacks. However, it pointed out that the additional supply outpacing the demand growth led by the intensified market share race had led to 5-6 percent y-o-y fall in cement prices in FY25, marking the sharpest annual decline in the past 20 years.
The agency expects consolidation in the cement sector to continue, where the top five players are snapping up smaller firms. It highlighted that the challenging operating environment in FY25 has widened the performance gap between large (Tier 1) and small (Tier 2) cement players. While the overall listed cement universe recorded 5-6 percent y-o-y growth in sales volumes, Tier 2 players saw a decline of 2-3 percent. This further impacted on the profitability of the key players with median EBITDA per tonne for Tier 1 companies declining around 20 per cent y-o-y, while Tier 2 players experienced a steep drop of over 50 per cent. Moreover, the report noted that this sharp decline in profitability has weakened the credit metrics of small players, whereas Tier 1 companies have maintained comfortable financial headroom, potentially paving the way for further consolidation.
