Indian cement manufacturers are gearing up to invest $14.3 billion over the next four years to increase capacity by 25 per cent, driven by rising domestic demand. This investment is expected to add an additional 160-170 million tonnes of cement production annually. The industry’s expansion will be funded primarily through internal accruals, minimizing reliance on debt. The government’s significant infrastructure push, with plans to invest $1.7 trillion in infrastructure projects by 2030, is a major factor behind this expansion.
According to S&P Global Ratings, the demand for cement in India is projected to grow at a compounded annual growth rate (CAGR) of 7 per cent over the next four years, in line with the planned capacity additions. The top-three cement producers in India, including Ultratech, Ambuja, and Shree Cement, are expected to contribute over 70 per cent of the country’s total capacity increase. The expansion will involve an annual capital expenditure of close to Rs 300 billion, more than double the average annual capex of the past decade. These leading cement companies are well-positioned financially to support this expansion, with strong cash flows and reduced debt levels.
Rising cement prices have bolstered the balance sheets of the top cement companies, allowing them to reduce debt significantly and maintain robust cash flows. As of March 31, the top three cement companies had cash and liquid investments exceeding Rs 250 billion, providing ample liquidity for future acquisitions and expansion. Ambuja Cement’s recent acquisition of Penna Cement Industries Ltd. for Rs 104 billion, fully funded through internal accruals, demonstrates the sector’s financial health. Ambuja Cement and Shree Cement are expected to maintain a net cash position despite their large capital expenditure plans, while UltraTech Cement is projected to turn net cash positive by fiscal year 2026.
Cement producers are implementing cost efficiencies through a shift in fuel mix, greater use of captive coal, and logistics optimization, which could lower industry-wide production costs by 8 per cent-10 per cent over the next four years. Leading companies like UltraTech Cement and Ambuja Cement aim to reduce their production cost by Rs 500 per ton by 2028, enhancing profitability. Despite potential price cuts as new capacity comes online, these cost reductions are expected to offset any declines in cement prices, resulting in a 1.5-2 percentage point improvement in EBITDA margins. India’s abundant limestone reserves ensure raw material security, further stabilizing production costs.
The government’s National Infrastructure Pipeline (NIP) initiative requires a capital outlay of Rs 100 trillion (USD 1.2 trillion) across various sectors, including roads, housing, urban infrastructure, railways, power, and irrigation. These sectors are major consumers of cement in the country. With India’s cement demand set to grow at a 7 per cent CAGR, capacity utilization levels are expected to remain above 70 per cent, even with new capacity being added. As the second-largest cement producer globally, India’s per capita cement consumption of 280 kilograms remains below the world average. The growing infrastructure projects, coupled with rising domestic demand, are driving the expansion and investment in the Indian cement industry, positioning it for substantial growth in the coming years.
