Weaker pricing power, sluggish demand to pare cement makers’ margin by 170-220 bps to 15-16% this fiscal

Cement makers are expected to see operating margin shrink 170-220 bps to 15-16% this fiscal on subdued realisations due to lack of pricing power and sluggish demand, and despite costs remaining benign.

Cement prices are likely to moderate 5-6% this fiscal.

Demand, which had logged a healthy compound annual growth rate (CAGR) of ~11% between fiscals 2022 and 2024 fuelled by government spending on infrastructure and rural development—especially before the general elections—is expected to lose steam to 4.5-5.5% this fiscal.

Demand will be weighed down by a combination of base effect, seasonal weakness, and deceleration in construction activity during the first half (amid an extended heatwave and labour unavailability during the general elections), although the second half is expected to see a revival in rural demand and an improvement in government spending on infrastructure to meet budget targets.

As for supply, companies have added a substantial capacity of ~101 million tonne (MT) in the past two fiscals. The trend is expected to bolster further with another 210-220 MT to come on stream between this fiscal through 2029 (implying a 5.5-6.5% CAGR) as manufacturers expand to newer geographies aggressively to gain market share.

The resource-intensive industry’s major input costs comprise power and fuel (P&F), raw materials and freight. P&F costs had rocketed in fiscals 2022 and 2023 as geopolitical uncertainties drove up the prices of crude oil and coal. But overall input cost declined with a correction in energy prices in fiscal 2024 and is expected to fall a further 500-600 bps this fiscal on lower energy and freight tabs.