The Indian cement sector is currently seeing a phase of rapid consolidation. Smaller players are either being acquired or struggling to survive, as large players threaten their margins with price wars. The recent infra boom has helped sustain volumes, even amid pricing pressure. 

Major cement manufacturers are on an expansion spree, both organic and inorganic. Even though existing capacities are not fully utilized, the race to gain market share is driving capex higher. 

The rising costs of coal and freight are adding pressure to profit margins. In an industry that is highly sensitive to pricing, firms find it challenging to implement price hikes. As a result, firms are moving towards green energy to reduce dependence on coal and diesel. 

A surge in infra projects ahead of the elections is driving volume growth in the cement industry for FY24. The industry typically sees a demand slowdown post-election.

Major acquisitions are reshaping the industry

Adani Group’s ACC Cements recently acquired Asian Concretes and Cements (ACCPL) for Rs 775 crore, adding 2.8 million tonnes per annum to ACC’s capacity. This acquisition is part of a larger industry trend, where big players are increasingly dominant and pushing smaller players toward consolidation. Ultratech Cement recently acquired Kesoram Cements in a share swap arrangement. 

The drive for acquisitions is particularly notable in Adani-led firms like Ambuja Cements and ACC Cements. The Adani Group aims to expand its capacity from the current 76.1 MTPA to 140 MTPA by 2030. In the cement industry, higher capacity is key to gaining market share, and most large manufacturers have set ambitious capacity expansion plans in the medium and long term. While organic expansion is time-consuming and costly, acquisitions provide access to operational plants with an existing client base.

Ambuja and ACC exceed FY25 capacity expansion targets

This massive capacity expansion plan is unfolding even as the industry’s capacity utilisation has stayed below 70%. FY24 is expected to see a capacity utilisation of 69.8%, backed by an uptick in cement demand. The industry’s capacity utilisation is expected to come down in the next five years as new capacities come online and demand drops.

Cement manufacturers record highest capacity utilisation in eight years

Election-driven spending boosts volume

In 2023, elections were conducted in five large states (Karnataka, Chhattisgarh, Madhya Pradesh, Telangana and Rajasthan) and four smaller states (Mizoram, Meghalaya, Tripura and Nagaland). While most of these elections took place in November 2023, the election-related infra spending happened before the polls. This led to an increase in cement offtake in these respective states.

Typically, cement manufacturers lower production volumes during certain seasons. But, this year, due to lower rainfall and state elections, manufacturers maintained cement production above 32 MT.

Cement production remains high despite the monsoon season

The upcoming Lok Sabha elections in May 2024 are expected to drive another round of infra spending across India. The concretization of highways and large housing projects in rural areas by the government is contributing to volume growth. The central government is expected to spend around Rs 10 lakh crore on housing projects in FY24, a big boost to the cement industry. 

Despite hikes, cement prices see minor shifts 

In September, the cement industry implemented a price hike, which was reflected in the market in October 2023. However, these elevated prices have cooled off over the past two months. While the initial price hikes were around 3%, the subsequent decrease was lower at 1.2%. 

All-India cement prices show decline in the past quarter

Following this trend, the impact on cement prices varied across different regions of India. The central and eastern regions of India saw a drop in cement prices, while the southern region experienced a 1% increase. Larger firms have gained the most from these price hikes, while local players were unable to sustain them.

Cement industry's margins moderate amid pricing battles 

The intense pricing competition in the industry has pushed cement manufacturers to prioritise volumes over margins. But the recent demand uptick has enabled a slight increase in prices. EBITDA margins per tonne are expected to rise by around 1.2% QoQ in Q3FY24.

Manufacturers’ margins moderate over the past three quarters

However, the increase in coal prices has limited the margin expansion in Q3FY24. Australian coal prices (a major source of imports) jumped by 12% in December. Freight costs also increased in the same period, leading to higher import costs for Indian manufacturers. The effect of these hikes is expected to be visible in Q4FY24, as the low-cost inventory gets used up. 

To mitigate these rising costs, manufacturers are exploring alternative coal sources like Indonesia and Russia to replace Australian coal.

Coal prices rise 12% MoM in December 2023

Cement manufacturers embrace green energy to reduce fuel dependency

Cement manufacturers are looking for alternatives to traditional coal and diesel, to address rising power and fuel costs that account for nearly 40% of the industry’s production expenses.

Dependence on coal imports, price volatility, logistical issues, and a shift towards green energy are driving manufacturers to invest in renewable energy sources like wind, solar and waste heat recovery systems (WHRS) to reduce their fuel and power costs.

According to Crisil, green energy met nearly 35% of the sector's energy needs in FY23. However, this number is expected to increase to around 45% by the end of FY27.

Ambuja Cement has announced an investment of Rs 6,000 crore for solar and wind power projects, while UltraTech Cement aims to raise its green energy usage from 22% to 60% by FY26.

Cement manufacturers invest in green energy to reduce fuel costs

Smaller players like JK Cement and Shree Cement have a higher share of green energy in their power mix. They have made ongoing investments in renewable energy, in proportion to their capacity expansions. While alternative fuels are increasingly replacing coal and pet coke, achieving full substitution remains  a technical challenge as renewable energy is limited in guaranteeing constant power supply.

Green energy investments might help in improving margins, but the price wars among major players are likely to eat into these gains. Also, the huge capacity coming online in the medium term will keep prices under pressure. However, given the upcoming elections, India’s cement consumption in the second half of FY24 is expected to see a 10-12% volume growth. If the coal prices remain range-bound, margins might see a boost