Is India’s Cement Sector Ready for the Next Big Infrastructure Wave?

India’s cement industry is currently in a significant capex phase. Between FY22 and FY25, companies invested ₹70,000–80,000 crore in capacity expansion. Over the next three years, an additional ₹1.2 lakh crore is expected to be invested. In the previous capex cycle, about 9.5 million tonnes of new capacity were added. In this cycle, the increase is projected to double, reaching 16–17 million tonnes. Major players, including Ultratech, Ambuja, Dalmia Bharat, and Shree Cement, are actively expanding their capacities.

The renewed surge in capex is driven by two key factors:

1. Meeting rising demand for cement across the country.
2. Enhancing profitability through operational efficiency and cost control.

Rising Cement Demand in India

Cement demand in India is growing steadily. According to CRISIL, the current demand stands at around 450 million tonnes. By FY28, annual incremental demand of 3–4 million tonnes is expected, resulting in a cumulative increase of 9–12 million tonnes over the next 3–4 years.

Demand is primarily concentrated across three sectors:

• Housing – ~60%
• Infrastructure – ~20%
• Industrial & Commercial – ~20%

Infrastructure is expected to emerge as the fastest-growing segment, with a projected CAGR of 8.5–9.5%, compared with 3% for housing and 5% for commercial. Over the past decade, the infrastructure sector’s share of cement demand has grown from 11% in FY14 to 13–20% in FY24, supported by government investment in highways, railways, metro projects, irrigation, and other major projects.

This rising demand has prompted companies to accelerate capacity expansion. Ultratech Cement surpassed its own target of 20 million tonnes by FY25–26, originally set for FY28. Similarly, Ambuja Cement raised its FY28 target from 14 million tonnes to 15 million tonnes.

Capex Plans and Utilisation Patterns

Cement plants rarely operate at full capacity, typically achieving 70–80% utilization. Three primary reasons explain why companies continue to invest in new capacity despite existing idle capacity:

1. Seasonality – Construction activity slows during monsoons, and cement has a short shelf life of 90 days. This necessitates controlled production, reducing average utilization.
2. Operational Complexity – Cement manufacturing involves sequential processes like clinker production, grinding, and heating. Maintenance, equipment downtime, and bottlenecks reduce effective capacity.
3. Fragmented Regional Demand – Cement is a low-value, high-volume product, making long-distance transport costly. About 85% of production is concentrated in South India, while demand in East & Central India is high. Low freight margins limit redistribution.

This cycle emphasizes location-specific capacity expansion, such as Dalmia Bharat’s 2.4 million tonnes grinding capacity in Assam to serve East India efficiently.

Profitability Through Cost Control

Profit in cement largely depends on cost optimization, as pricing power is limited for this commodity. Key cost components (≈75% of total cost) include:

1. Raw Materials – Securing limestone reserves is critical to control costs, as post-2015 auctions increased production expenses.
2. Power & Fuel – Representing ~31% of costs, companies are investing in renewable energy. Ultratech increased renewable power from 30% (Q2 FY25) to 41% (Q2 FY26), aiming for 65% by FY28. Ambuja moved from 7% (Sept 2022) to 33% (Q2 FY26), targeting 60% by FY28, reducing power costs by ~23%.
3. Freight Costs – ~26% of costs, mitigated through split grinding units and logistics partnerships. Ultratech and Ambuja allocate 75–85% of capex to grinding units closer to demand centers. Collaborations with Indian Railways and CCI further improve distribution efficiency.

Brownfield expansions and plant debottlenecking (~65% of this cycle’s capacity) remain preferred strategies due to faster execution and lower cost compared to greenfield projects.

Assessing Oversupply Risk

Current cement capacity in India is 686 million tonnes. With FY28 capex, total capacity could reach 850 million tonnes. Assuming 70–80% utilization, effective capacity would be ~596 million tonnes, exceeding FY28 demand (~550 million tonnes) and leaving a safety margin of ~45 million tonnes.

Oversupply risk is minimal until FY28, but could rise if infrastructure growth slows. China experienced a similar situation in the early 2010s, where aggressive expansion led to output surpluses and falling prices by 2024. India’s per capita cement consumption remains 280 kg, below the global average of 500 kg (China: 1,400+ kg), suggesting room for growth.

Some companies, such as Shree Cement, adopt a cautious approach, planning only ₹3,000 crore capex until FY27 to monitor demand before further expansion.

India’s cement sector is experiencing a strategically driven capex cycle, focused on meeting rising regional demand and enhancing profitability through cost efficiency. While oversupply risk is limited in the near term, regional supply imbalances and long-term demand fluctuations will require careful monitoring.

---

Follow Storyantra for the latest updates, insights, and in-depth analysis on business, finance, markets, and the economy. Stay informed with expert perspectives, trends, and strategies shaping India’s corporate and financial landscape.