India is the second-largest cement market in the world with an increasing population and high development needs. Consequently, the prospects for long-term cement demand growth are good. While many cement companies have delayed investment plans due to the ongoing pandemic, in India there is a surge of activity for CAPEX projects.
The Cement Manufacturing Association (CMA) currently estimates that India has an installed cement capacity of 545Mta. A report by Crisil Ratings claims that as much as 80Mt of additional cement capacity is planned to come on-stream in the next three years. "Nearly 70 per cent of this incremental capacity is being put up by the top 10 players which will shore up their capacity share to 65 per cent by fiscal 2024 from current 63 per cent," said Aditya Jhaver, director at Crisil Ratings.
Moreover, the location of the additional capacity is skewed with more than almost 45-47Mt of the addition forecast to commence in the eastern and central regions of India. Only 6-7Mt of new capacity is expected to emerge in the south of the country.
UltraTech Cement (Aditya Birla Group) is a large player in this development. In recent weeks, the company's board has approved fresh CAPEX totalling INR54.770bn (US$737.3m) to add 12.8Mta of cement capacity in greenfield and brownfield projects. "The additional capacity will be created in the fast-growing markets of the east, central and northern regions of the country. This expansion is in addition to your company's 6.7Mta capacity expansion currently underway in Uttar Pradesh, Odisha, Bihar and West Bengal," said Kumar Mangalam, UltraTech Cement chairman.
Meanwhile, Dalmia Bharat has announced its intention to become a pan-India cement producer by driving its production capacity up to 110Mta-130Mta by 2031. The company aims to raise its capacity by 48.5Mta by 2024 and 60Mta by March 2025.
The race to build higher cement capacity will put pressure on those who cannot respond quickly to increased competition. IPO's are the order of the day with Novoco Vistas Corp Ltd looking to increase its financial muscle to safeguard its eastern markets, where it operates 22Mta of cement capacity. JSW Cement is similarly attracting private equity investors to raise funds and embark on a further expansion spree. Most of its capacity is currently in the south, but JSW Cement has plants in the east as well as a presence near Mumbai with its 2.2Mta Dolvi cement plant.
Population growth and urban migration are major triggers
Population growth has been on the watch clocks of many leading cement producers, such as Holcim (ACC Ltd and Ambuja Cement), UltraTech, India Cements Ltd and Ramco Cements Ltd, that are investing in ready-mix companies and in dry mortar products, as well as expanding their cement capacities in and around urban hubs. India will surpass China as the world's most populous country by 2024 with its current growth rate of one per cent, and is adding 13 million people in 2021 alone.
Furthermore, there is a shift in migration with another 500m people expected to migrate to Indian cities between now and 2030 for better economic opportunities. India already has three of the world's largest 10 cities in Delhi, Mumbai and Kolkata, while Ghaziabad, Surat and Faridabad are all among the fastest-growing cities.
India is on an affordable housing mission
India is embarking on a transformation of its urban sector focussing on Sustainable Development Goals (SDG) 11 by 2030 which means affordable housing, reducing slum-like conditions, better urban planning, renewable energy and secure residency. SDG 11.1 will take this further to 2050 with reforms in real estate, urban transformation and housing for all, as well as sustainable urbanisation. Simultaneously, the government initiated its Smart Cities Mission in 2015 to create 100 smart cities by 2020 and this scheme has been extended.
The growth in the housing market is a large reason why cement producers are looking to start new CAPEX projects. Kumar Mangalam has said: "Cement demand is closely linked to the housing and infrastructure sector. The industry has been on a volume growth path, motivated by the government's 'Housing for All by 2022' mission and large infrastructure projects in the pipeline."
Green India will boost cement demand
Green infrastructure will also raise India's cement demand. National infrastructure spending has been cited at INR100trn (US$1.33trn) for 'Gati Shakti' which will expand the country's use of clean fuels. In August 2021, Prime Minster Narendra Modi, pledged to invest in more electric mobility, solar energy and green hydrogen for India to become energy independent by 2047.
Outlook
India is looking past the challenges of the pandemic in construction and is picking up pent-up demand in cement sales. In June, cement volumes rose by 22 per cent MoM and Indian ratings report that June is likely to have registered sequential growth of about 20 per cent in cement volumes in India.
The medium-term looks equally impressive with CAPEX announcements abounding with 80Mt of additional capacity through FY22-23. Yet, the regional development of this growth is likely to see populations in the south less catered for, as the growing urban hubs in eastern and central India take on more importance with construction growth and employment opportunities.