Crisil Expects Decade-High Capacity Addition By Cement Makers In Three Years

India’s cement makers will add nearly 80 million tonnes of new capacity through fiscal 2023-24, the highest in a block of three years in a decade, buoyed by a healthy growth outlook, according to Crisil Ratings Ltd.

That will take the industry’s total installed capacity to 618 million tonnes, according to a report by Crisil. The market share of top 10 players will increase as 70% of the new capacities will be added by them, it said. But lower project risks and funding of this capital expenditure through internal accruals will help keep their credit profiles strong.

The rating agency expects more than 10% annual growth in demand this fiscal, driven by revival in spending on roads and railways, and housing segments. Crisil also expects medium-term demand outlook to remain robust on the infrastructure push.

The capacity addition will be skewed with almost 45-47 MT in the eastern and central regions, supported by strong demand scenario of these regions and higher current utilisations of 72%, said the report. In comparison, South is expected to add 6-7 MT, given excess supply and lower utilisation levels of 54%, it said.

Crisil said 60% of the new capacities will be brownfield—or expansion at the same location, keeping capital costs 40-50% lower at Rs 4,100-4,600 a tonne. That will lower overall cost to around Rs 25,000-26,000 crore for the top 10 players.

Of the total spend, nearly Rs 5,500-5,600 crore was already incurred by March 31. The rest is expected to be funded through internal cash accruals of at least Rs 50,000 crore likely to be generated over the next three fiscals.

That means the capacity addition will happen without an increase in debt. Crisil expects six out of the top 10 cement makers to be net debt-free by the end of FY24 compared with four in FY21.

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