The cement sector is a cornerstone of India’s economy, playing a crucial role in infrastructure development, housing, and construction. With the government’s strong push for infrastructure projects like roads, railways, and housing under schemes such as PMAY (Pradhan Mantri Awaas Yojna), the sector has immense growth potential.
Although the sector witnessed modest growth of 2-3% in Q1FY25 due to the Lok Sabha elections, ICRA estimates a robust 7-8% growth for FY25, driven by rising demand in infrastructure and housing.
Major players like UltraTech, ACC-Ambuja, Shree Cement, and Dalmia Cement are set to add over 42 million tonnes of capacity, increasing their market share from 48% in FY23 to an expected 54% by FY26, ensuring sustained growth and competitiveness.
Central Government to Likely Announce 95,000 Crore Interest-free Loan to States for CAPEX
The Central Government’s announcement of a Rs 95,000 crore interest-free loan to states for capital expenditure is a major initiative aimed at boosting infrastructure development. This part of the Rs 1.5 lakh crore target for FY25 eliminates conditionalities, allowing faster disbursement of funds. The move is designed to support states struggling to meet reform targets, with less than Rs 1 lakh crore approved so far.
By driving state-level infrastructure projects, the government is significantly increasing capital expenditure (CapEx). This surge in infrastructure activity will directly benefit the cement sector, as demand for cement will rise for construction, roads, and other state-funded projects, creating significant growth opportunities for cement manufacturers.
Infrastructure Push Driving Growth
The cement sector is witnessing a notable revival, primarily driven by extensive government infrastructure initiatives and urban housing projects. JM Financial projects a robust CAGR of 7-8% for the industry from 2025 to 2027, which will help stabilize capacity utilization at around 72%. This growth trajectory is supported by significant government expenditure on infrastructure development and housing initiatives.
Sector Consolidation Enhancing Profitability
A transformative phase in the cement sector is underway, marked by significant consolidation efforts led by major players like Adani and UltraTech. These consolidation activities have introduced stronger pricing discipline in the market, creating the potential for sustained profitability gains. The strategic moves by these industry leaders are reshaping market dynamics and improving overall sector efficiency.
Operational Efficiency and EBITDA Growth
Despite facing multi-quarter lows in FY25 due to weak demand and intense competition, the sector’s profitability is expected to recover significantly. JM Financial forecasts an impressive EBITDA CAGR of over 25% for the sector during FY25-27. This improvement is attributed to a more stable pricing environment and enhanced operational efficiency measures implemented by major players.
Cost Optimization and Risk Mitigation
The industry’s strategic focus on cost optimization and de-risking initiatives is expected to help manage cyclical fluctuations effectively. Companies are implementing structural changes aimed at driving long-term profitability, suggesting investors should look beyond short-term price fluctuations and focus on the sector’s long-term potential.
Regional Challenges and Opportunities
While the overall outlook is positive, JM Financial maintains a cautious stance on cement players in the South and East regions. These areas may face challenges due to aggressive capacity additions and increased competition. Companies like Shree Cement, Dalmia Bharat, and Star Cement have been given ‘hold’ ratings, reflecting these regional concerns.
Stocks to Buy
JM Financial has initiated coverage on five major cement stocks with ‘buy’ ratings.
- UltraTech Cement emerges as their top pick with a target price of Rs 13,000, offering 22% upside potential.
- Ambuja Cements follows with a target price of Rs 685 (28% upside), and JK Cement with Rs 5,300 (16% upside).
- ACC and Birla Corporation have also received ‘buy’ ratings, supported by improving sector fundamentals and their strong growth prospects.
Written By: Dipangshu Kundu
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