The Indian cement industry is the second largest market after China. Cement is a cyclical commodity with a high correlation with GDP. The Cement Industry plays a crucial role in national development growth through its contribution in the construction and development of infrastructure. The housing and real estate sector is the biggest demand driver of cement, accounting for about 65% of the total consumption in India. The other major consumers of cement include public infrastructure at 20% and industrial development at 15%. Cement sector is an indirect beneficiary of higher government spending and any measures in the budget to improve spending augurs well for the sector. Despite elevated fiscal deficit, expectation is higher spending to spur economic growth. Budget expectations:

• Higher government focus on building infrastructure including roads, airports, ports, bridges and other hard structures will increase overall cement demand. Overall Capex for the infrastructure sector likely to increase in the budget 2023. Also, rural infrastructure development through Pradhan Manti Gram Sadak Yojna, Pradhan Mantri Awas Yojna (Rural), and MNREGA likely to get more funds for development. Increment in allocation of funds to government schemes will enhance cement consumption further.

• To support Real estate demand in the affordable housing segment the government should widen the parameters under which affordable housing is defined for the various incentives provided to this sector and increase the pricing band from Rs 45 lakh to higher amount in large metros. The interest deduction on housing loan should be increased from current Rs 2 lakh to Rs 3 lakh. Give industry status to real estate and allocate more funds to Pradhan Mantri Awas Yojna (Urban) are some of the budget expectations.

• Under the NIP (National Infrastructure Plan), the government has ambitious plans to develop the infra landscape of the country. Fast-tracking of major highway projects will create more demand for cement, positively impacting cement demand.

• Transportation and logistics is a space which needs immediate attention and expectations that the budget to focus on the measures to improve and bring down the logistic cost. Lowering GST on Cement from the current 28% to a lower slab will positively impact cement consumption.

• Expects budget to facilitate and expand overall infra development which will positively benefit cement companies with higher demand.

Expansions spree likely on demand revival

Cement companies are on an expansion spree and are expected to add 80-100 million tonnes (mt) of fresh capacity by FY25, supported by strong demand prospects. Cement demand will be driven by infrastructure upgrades, rural housing and urbanisation. The sector will see huge demand momentum with higher government spending on infrastructure owing to general elections.

India’s cement demand is expected to reach 550-600 MTPA by 2025 with the housing sector accounting for about 67% of the total consumption. The other major consumers of cement are infrastructure at 13%, commercial construction at 11% and industrial construction at 9%.

With a well deleveraged balance sheet, the industry likely to add an incremental capacity of about 30-33 mt in FY23 from about 25 MTPA in FY22, with Aditya Birla Group’s UltraTech Cement accounting for a chunk.

Outlook:

India is the world second largest cement producer (after China) and accounts for over 8% of the global installed capacity. The three most common cement types produced in India are OPC, PPC, and PSC. The current capacity of the Indian cement industry is

500 million tonne per annum (MTPA) and average capacity utilization ranges between 65-70%. India’s cement demand is expected to reach 550-600 MTPA by 2025, due to the increasing demand in various sectors such as housing, commercial construction and industrial construction.

Cement companies are on an expansion spree and are expected to add 80-100 million tonnes (mt) of fresh capacity by FY25, supported by strong demand prospects. The industry is likely to add an incremental capacity of about 30-33 mt in FY23 from about 25 MTPA in FY22. Cement demand will be driven by infrastructure upgrades, rural housing and urbanisation. The sector will see huge demand momentum with higher government spending on infrastructure owing to general elections.

India’s cement demand is expected to reach 550-600 MTPA by 2025 with the housing sector accounting for about 67% of the total consumption. The other major consumers of cement are infrastructure at 13%, commercial construction at 11% and industrial construction at 9%. The cement industry dynamics looks positive given better demand prospects, because of the consolidation in the sector, considerable pick up in the activity both from the government side as well as from the private side in terms of construction, real estate and related activities which is definitely extremely good.