India's cement industry to clock higher profit in FY26 as demand firms up: Report

New Delhi, July 7 (IANS) Growth in India’s cement demand will recover to 6.5-7.5 per cent during the current financial year after falling to around 5 per cent in 2024-25. This, coupled with an uptick in realisations, will lift operating profitability by about Rs 100, to a level just above the decadal average, according to a Crisil report released on Monday.

Healthy accrual coupled with robust balance sheets will keep the credit profiles of cement makers stable, the report states.

The Crisil analysis is based on data from 17 cement companies, accounting for over 85 per cent of domestic sales volume.

During the last financial year, cement demand hit a soft patch in the first half and reported a tepid growth of 2-3 per cent owing to a slowdown in construction activities due to the general elections and an erratic monsoon. However, there was a recovery in the second half leading to an annual demand growth of around 5 per cent.

Crisil Intelligence director Sehul Bhatt said, “This fiscal, cement demand will be driven by a 7-8 per cent growth in the rural housing segment, which accounts for a third of the domestic demand. Indeed, rural housing demand will replace infrastructure segment as the primary demand driver this fiscal owing to expectations of rise in agricultural income on a likely healthy monsoon. Higher disposable income on account of tax cuts and benign inflation will also support rural housing demand.”

On its part, the infrastructure segment, the second-largest contributor to cement demand with around 30 per cent share, is expected to grow at a relatively slow, but steady pace owing to lower awarding of national highway projects in the previous two fiscals and muted capital outlay growth for railways.

Meanwhile, cement prices witnessed healthy uptick in the first quarter of the current fiscal and are expected to rise 2-4 per cent this fiscal after two consecutive years of price lull.

Crisil Ratings director Anand Kulkarni said, “Along with higher demand, a recovery in realisations, amid stable costs, will lift the operating profitability of cement makers to Rs 975-1,000 per tonne this fiscal against around Rs 880 per tonne in the last fiscal and the decadal average of around Rs 965 per tonne. Increasing proportion of competitively sourced green energy in the power mix will lead to some savings in power and fuel costs. This will support profitability by offsetting the Rs 20-30 per tonne rise in raw material prices due to higher cost of limestone, fly ash and slag.”

However, an extended monsoon impacting construction activity or lower infrastructure spend, which can affect demand, and any adverse movement in commodity and energy prices owing to global geopolitical tensions, which may dent profitability, will bear watching, the report added.

--IANS

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