India Ratings and Research expects cement prices to come under pressure with companies trying to increase output amid weak demand environment and fresh capacity additions.

Cement prices have already dipped to its lowest in last two decades due to lower demand from both the infrastructure and realty sector.

The realisations are down by about 7 per cent y-o-y in the 11 months of this fiscal due to continued capacity additions amid the weak demand, said the rating agency.

Ind-Ra has maintained a neutral outlook on the overall cement sector for FY26 while assigning a deteriorating outlook to small players.

For the first time ever, Ind-Ra has assigned different outlooks to large and small players (with less than 15 mt capacity), due to the growing divergence in their performances.

Khushbu Lakhotia, Director, Corporate Ratings, Ind-Ra said that while the large players may witness growth in FY25, the smaller cement companies will register fall in volumes with their profitability being about 40 per cent lower than long-term average, leading to weak credit profiles in FY26.

Ind-Ra expects the cement demand to grow mid-single-digit in FY26 on recovery in demand from the infrastructure segment after a weak FY25 and continued growth in urban housing.

Consolidation

The cement industry has witnessed a massive wave of consolidation in the past couple of years. A capacity of 40 mt had changed hands in FY25. Interestingly, over 85 per cent of the acquisitions was executed by UltraTech Cement and Adani Group companies Ambuja Cements and ACC.

With the capacity addition targets of large players unlikely to be achieved through organically, further consolidation in the near- to medium term cannot be ruled out, it said.

Capacity addition

Expansions of about 160 mt have been planned over FY25-27 on a capacity base of about 615 mt in FY24. The pipeline for FY26 is heavy with supply addition likely surpassing the previous decadal high of 40 mt witnessed in FY’18.

This will lead to capacity utilisation remain range-bound at 67-68 per cent in FY26, marginally lower than 69-70 per cent witnessed in FY24.

The capacity utilisation will be the highest in the northern region followed by the western region though the competition will be high given the influx of surplus cement from the southern market. Large capacity addition to weigh heavily on utilisation in the central region. About one-fourth of the planned capex is concentrated in the high-potential eastern region, largely in the form of grinding units. Consequently, the region is likely to witness subdued capacity utilisations in the near term.