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Rating agency ICRA in its latest report has revised down its volume growth forecast for the cement industry to 4-5 per cent at 445-450 million tonne for the current fiscal (FY25) on account of slower-than-expected ramp-up in construction activity across the housing and infrastructure sectors, post the General Elections. In July this year, it had forecast a year-on-year volume growth of 7-8 per cent, expecting a better pick-up in demand in the second half. Besides, on a YoY basis, the operating profit margins declined by 375 basis points to 12 per cent in Q2 FY25 and by 192 bps to 14 per cent in H1 FY25 as prices remained under pressure due to muted demand and oversupply.

According to the report, in the first half of FY25 all-India cement volumes witnessed a muted rise of 2 per cent YoY to 212 million tonne on account of the slowdown in construction activity in Q1 during the elections, followed by the ample monsoon rainfall in Q2. The likely improvement in farm cash flows, backed by healthy monsoons, an upbeat kharif output and elevated replenishment levels of reservoirs supporting the rabi crop sowings, are expected to boost the rural consumption in H2, which should aid the cement demand for the rural housing segment. Moreover, sustained healthy demand for urban housing should support the pick-up in cement volumes from the housing segment. The infrastructure segment is also likely to witness greater traction in H2, supported by an increase in government spending on infrastructure projects.

The report said the government gross capex spend in H1 FY25 remained subdued at Rs 4 lakh crore, against the revised Budget Estimate of Rs 11.1 lakh crore for the full year FY25. The substantial headroom for the government’s capital spending in H2 FY25 to meet the FY25 revised BE, is likely to provide a fillip to construction activity and aid in supporting the allied input sectors like cement. Besides volume, the cement industry is also facing a decline in actual realisation due to lower prices prevalent into the sector. The cement prices remained under pressure, declining by 10 per cent YoY to Rs 330 per bag in H1 FY25 due to muted demand and oversupply in the market. While the lower sales realisations were partially offset by moderation in costs of coal and pet coke, which eased by 38 per cent and 13 per cent YoY in H1 FY25, respectively.