Cement manufacturers regain aging average profitability rather than demand revival in 2025-26: Crisis
According to the CRIRIL Rating Report, growth in cement demand in India will return to 6.5-7.5% of the current fiscal year (2025-26), after falling to 5% in the recently concluded fiscal year 2024-25.
The rating agency asserted in a Monday report that this would coupled with the achieved growth, boosting operating profitability to more than the decade-long average.
A healthy accrual, coupled with a strong balance sheet, will maintain a stable credit profile for cement manufacturers, a crisis analysis of 17 cement companies accounts for more than 85% of domestic sales.
Cement demand was soft in the first half in the last fiscal year and reported an increasing 2-3% increase due to slowing construction activity due to the election and monsoon instability.
However, the second half of the year recovered, resulting in a 5% increase in demand every year.
“This fiscal, cement demand will be driven by a 7-8% increase in rural housing sector, which accounts for one-third of domestic demand,” said Sehul Bhatt, director of Crisil Intelligence.
“In fact, rural housing demand will replace infrastructure sectors as the main demand driver due to expectations that a possible healthy monsoon may increase the increase in agricultural income. As expected agricultural income increases, higher disposable income will also support rural housing demand,” Bhatt added.
On the other hand, as the lower national highway projects awarded to the first two fiscal years, infrastructure is partly the second largest contributor to cement demand, expected to grow at a relatively slow but steady rate, while railway capital generated growth.
Meanwhile, the rating agency said in its report today that cement prices witnessed a healthy rise in the first quarter of the current fiscal, which is expected to rise 2-4% in the fiscal year after two consecutive years of price pauses.
Anand Kulkarni, Director of Ratings at Crisil, “With high demand, recovery and stable costs, the recovery of cement manufacturers will increase their operating profitability to Rs 975-1,000 per ton this fiscal year, while the average of Rs 880 per tonne last ton and ntonne decadal per tonne is Rs 965 per ton.”
Kulkarni added: “The proportion of competitive green energy in the power portfolio will result in some savings in electricity and fuel costs. This will support profitability by offsetting the cost of higher limestone, fly ash and stoves to offset Rs 20-30 per ton of raw material prices.”
According to CRIRIL ratings, an increase in cash accrual will reduce the reliance on external borrowing to fund capital expenditures.
“This is an extended monsoon affecting construction activity or lower infrastructure spending, which could impact demand, and any adverse movement that could make profit margins lower in commodity and energy prices would bear the observation due to global geopolitical tensions.”
