Indian cement producers prepare for major expansion

Indian cement producers are set to invest approximately US$14.3bn over the next four years, aiming to increase capacity by around 25 per cent, or  an estimated 160-170Mta of production capacity. The expansion will be driven primarily by the three leading cement producers in India: UltraTech, Ambuja, and Shree Cement. Collectively, these companies will account for 70 per cent of the country’s capacity increase. The producers’ capital expenditure costs for these expansions is expected to be close to INR300bn (US$3.57bn), more than double the average annual capital expenditure of the past 10 years.

The investment is prompted by rising domestic demand for cement. The Indian government’s major infrastructure push, including plans to invest US$1.7trn in infrastructure projects by 2030, is a key driver behind this expansion. This public investment in infrastructure is expected to stimulate cement demand and support the industry’s growth.

S&P Global Ratings projects that the demand for cement in India will grow at a compound annual growth rate (CAGR) of seven pe rcent over the next four years, aligning with the anticipated capacity additions. The cement industry is also expected to achieve cost efficiencies through a shift in fuel mix, increased use of captive coal, and optimised logistics, which could lower production costs by 8-10 percent over the next four years.

The expansion will be primarily funded through internal accruals, minimising the need for debt. Leading cement producers are in a strong financial position to support these investments due to rising cement prices, which have enabled them to substantially reduce debt while maintaining healthy cash flows. As of 31 March 2024, the top three cement companies had cash and liquid investments of over INR250bn, providing ample liquidity for future expansions and acquisitions. For instance, Ambuja Cement’s recent acquisition of Penna Cement Industries Ltd for INR104bn was funded entirely through internal accruals.

Both Shree Cement and Ambuja Cement are expected to maintain a net cash position despite their large investment plans, while UltraTech Cement is projected to turn net cash positive by FY25-26. This financial strength, coupled with India’s extensive limestone reserves ensuring a stable raw material supply, underpins the industry’s ability to manage these expansions effectively. Cement manufacturers are also anticipated to improve EBITDA margins by 15-20 per cent, offsetting potential declines in cement prices due to new capacity, further enhancing their financial stability.