In a recent report by CRISIL, the demand for cement has been on the rise and to cater to this the cement industry in India has been planning to inject ₹1.25 lakh crore by FY27. This capital expenditure will boost the cement industry’s production capacity by another 130 million tonnes. Already the major players in the market have started their expansion and this report can further boost the momentum.
Rationale behind the capex investment
In the previous few fiscals, the real estate market was sluggish due to the pandemic and economic slowdown. However, with the boom in the real estate market, the cement industry’s demand has started picking up. The demand outlook seems healthy which is one of the primary reasons for the cement companies planning their expansion and capex investment.
Apart from this, another reason pushing these cement companies to inject more in the capex is market share. The quest to achieve a higher market share has been playing a pivotal role in investment planning too.
As per the CRISIL report, the low capex intensity of the industry along with the strong balance sheets of the cement giants and even the medium and small-scale companies have been the crucial reasons for keeping the credit profile of these companies under check. This has been also the prime reason behind the capex investment increase from this fiscal. The anticipated investment in capex has been 1.8 times of capex investment in the last three financial years.
The report also indicated the financial leverage in the industry which has been below 1x for quite a long driven by strong profit margins.
Demand Growth, Installed Capacity & Capex Intensity
In the past three years, the demand has been growing at a 10% CAGR which made the cement companies utilize their assets to the optimum level. The utilization level itself has gone up to 70% in this fiscal, which has been the highest in the decade.
The current growth of the cement industry in India indicates demand growth at 7% CAGR for the next five years. Since the capex utilization has been at its peak, the capex investment has become a mandatory thing in this industry at present.
The current installed capacity in the country is around 670 million tonnes. With the ₹ 1.25 lakh crore of capex investment, this is projected to add another 130 million tonnes of cement.
Coming to the capex intensity, which means the amount of capital expenditure required to run the business, has been lower in the cement industry for quite some time now. It has been projected that the same will remain range-bound at 0.7 to 0.9 for the upcoming two fiscals.
Major players in the Cement Industry
Currently, UltraTech cement which comes under the Aditya Birla Group leads the cement industry with an installed production capacity of 150 million tonnes and it is expected to increase to 200 million tonnes with the capex investment in the coming two years.
In second place, is Adani Group which is targeting to increase its installed capacity to 140 million tonnes annually by FY28.
Ambuja Cements along with its subsidiaries such as ACC, Sanghi Industries, and MyHome Industries announced that it is going to acquire Hyderabad-based Penna Cement. The enterprise valuation of ₹ 10422 crore to be used for the deal. This plan will add another 14 million tonnes of cement per year which is currently at 79 MTPA.
Apart from these cement giants, Shree Cement, JK Cement, and Dalmia Bharat also announced their capex investment plans for the upcoming fiscals. The top five companies in this sector in FY24 held 54% of the market share. The top five include UltraTech, Ambuja including ACC, Shree Cement, Dalmia, and Nuvoco Vistas.
Source: TheEconomicTimes
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