Cement demand set to rise, but not unusual profitability for Indian companies: Moody's

Chennai, Feb 15 The infrastructure led investments in India will drive up the demand for cement and other building materials, said Moody's Investors Service in a report.

According to Moody's, India's cement production will climb by around 6-8 per cent over fiscal years 2023 and 2024, following a 21 per cent jump for the fiscal year ended March 2022.

However the industry is unlikely to enjoy unusually high profits as it did in fiscal 2022, Moody's added.

The housing sector will remain the major demand driver as the segment accounts for 60-65 per cent of India's cement consumption, Moody's said.

"Also, continued large investments in roads and infrastructure projects will fuel cement demand. India built 12,000 kilometers of highways in 2022 alone and this momentum will likely continue in 2023 and 2024, supported by various government initiatives," Moody's said.

Furthermore, in the Union Budget for fiscal 2024, the government has allocated $1.8 billion for the creation of safe housing, clean drinking water and sanitation, and increasing road and telecom connectivity, among other initiatives.

The government has also allocated $9.6 billion to address urban housing shortages, the credit rating agency said.

While cement demand remained solid in the world's second-largest cement market for most of fiscal 2023, profitability slid sharply, largely owing to elevated costs of pet coke, coal and diesel.

"A sequential, quarter-on-quarter, decline in these costs will prevent a further sharp decline in profitability, although a return to the unusually high profits cement producers enjoyed in fiscal 2022 is highly unlikely," Moody's said.

Moody's said, following the acquisition of Holcim Ltd's Indian cement operations by Adani Group, several cement producers announced new capacity additions totaling 60 million tonnes that will likely keep capacity utilization under 70 per cent and prevent sharp price increases.