Cement Industry Enters Capex Super-Cycle as Demand Momentum Builds

by Ravleen Sethi, Director & Sahil Goyal, Assistant Director, CareEdge

After a volatile period of uneven demand, price corrections and supply-side stress, India’s cement sector entered FY26 on a cautious footing. 9MFY26 has brought early stabilisation, supported by recovering demand, softer costs and a gradual improvement in profitability, though from a low base. The sector’s trajectory over FY26-FY28 will be shaped by an interplay of strengthening consumption drivers, accelerated capacity additions, evolving competitive behaviour, and gradual recovery in financial metrics. Union Budget 2026-27 reinforces a strong demand outlook for the cement sector, led by a ~9% increase in infrastructure capex to ₹12.2 lakh crore. Continued focus on high-speed rail corridors, dedicated freight corridors, national waterways, ports and urban infrastructure under City Economic Regions is expected to sustain large-scale construction activity nationwide. These initiatives are inherently cement-intensive and should drive steady volume growth, particularly from transport, logistics and urban development projects. Improved multi-modal connectivity is also likely to support long-term cement demand in industrial and logistics hubs, while the proposed Infrastructure Risk Guarantee Fund could crowd-in private investment, further boosting construction volumes and sectoral growth visibility.

Demand Outlook: Recovery Led by Rural Housing and Public Infrastructure

Sector demand is expected to rebound to ~7% growth in FY26, up from a subdued ~4–5% last year, supported by a more broad-based recovery. Rural housing is emerging as the key growth engine, aided by an above-normal monsoon outlook, improving farm incomes, and enhanced affordability following the GST rate cut, which lowered cement prices by ~₹30–35 per bag in rural and semi-urban markets.

The Union Budget’s continued thrust on infrastructure capex is expected to reinforce demand momentum, particularly through higher execution of state-led projects, metros and expressways. After a weak highway award cycle, improving project execution and a pickup in central capex during the first half of the year should support non-trade volumes. Urban housing remains resilient in the premium segment, although new launches slowed in early FY26; the demand impact of lower interest rates is likely to materialise more meaningfully in the second half of the year.

Pricing and Realisations: A Measured Recovery After a Difficult FY25

Price traction in the cement industry has remained weak over the past two years, with the Average NSR declining from Rs 5,611 per tonne in FY23 to about Rs 5,250 per tonne in FY25, driven by increased competition, demand moderation, and softer input costs. FY25 was one of the most challenging years for cement realisations, with prices across India falling sharply to around Rs 5,250 per tonne due to a poor first half, fierce competition, and new supply entering the market. FY26 has started on a relatively stronger note. In FY25, realisations declined further to around Rs 5,250 per tonne, a decrease of nearly 5% at the pan-India level, though the extent of the correction varied across regions. Demand moderation and softer input costs also limited the industry’s ability to implement significant price increases.

The first quarter of the year delivered the first year-on-year increase in realisations since late FY24. Prices recovered most meaningfully in the South, where the prior year’s steep declines had created an exceptionally low base. The East also witnessed nascent stabilisation after prolonged price pressure. The North and West remained comparatively steady, helped by more favourable demand supply balances. Sequentially, second-quarter prices softened in line with monsoon seasonality and the pass through of the GST cut, yet they stayed higher than the previous year’s levels, providing a cushion to profitability.

Despite some progress, sustained growth in prices is unlikely in the near term. Competition is expected to stay elevated, especially in oversupplied areas. Price forecasts for FY26, therefore, remain modest, with a likely low single-digit YoY increase. Meaningfully stronger pricing power is unlikely until capacity utilisation remains above 70–75%, a scenario that appears unlikely in the near term given the commissioning pipeline.

Cost Tailwinds Drive Margin Recovery as Fuel Prices Ease

FY26 has been witnessing moderation in the sector’s cost curve. Imported coal prices remained soft through the first half, declining 7-8 per cent year-on-year, while pet coke prices, though marginally higher in mid-year months, stayed broadly manageable. This positive fuel environment, along with increased adoption of waste heat recovery systems, green power, alternative fuels, and higher blending ratios, is expected to lead to a 3-5 per cent reduction in power and fuel costs in FY26. Logistics efficiencies and improved multimodal transport utilisation also contributed to reduced cost pressures.

Lower costs are supported by improving realisations. As a result, EBITDA per tonne recovered sharply from the depressed levels of FY25. Industry margins ranged between Rs 1,000 per tonne in the first half of FY26, reflecting a year-on-year improvement of Rs 200–220 per tonne. Mid- to large-sized players benefited more strongly from the recovery, reflecting their superior logistics, higher adoption of green power, and better blending ratios.

Industry profitability for FY26 is expected to stabilise around Rs 950-980 per tonne. Further efficiency gains are anticipated as companies expand WHRS capacity, deepen alternative fuel usage and continue network optimisation initiatives, which may expand profitability for players by another Rs 50-100 per tonne in FY27-FY28.

Supply Dynamics: Capacity Additions to Keep Utilisation Under Pressure

A key theme influencing the medium-term outlook is the scale of expansion currently underway. Between FY26 and FY28, cumulative additions could surpass 180-200 million tonnes, driven by both greenfield projects and the ramp-up of previously underutilised assets acquired during the recent consolidation phase.

This influx is anticipated to keep industry utilisation below 70% until FY26-FY27, with a slight dip during the monsoon quarters. The South, East, and Central regions will absorb most of the new capacity and, as a result, face heightened competitive pressures. In the North, where capacity growth is relatively modest, prices may stay fairly stable, although aggressive volume strategies by larger players could still limit potential gains.

Limestone availability remains sufficient across the country, but the expenses associated with acquiring and developing new mining leases are increasing in certain regions. Integrated operators with secured mining resources maintain a clear structural advantage in this cycle.

Consolidation and Sector Structure: Efficiency Over Pure Scale

The consolidation cycle over the past three years has significantly reshaped market structure. By FY28, the top four players may control nearly 60-65% of total capacity. While this consolidation has bolstered balance sheets and enhanced cost competitiveness, it has not led to stronger pricing discipline due to the fragmented nature of regional markets and the aggressive capital expenditure plans of larger players. The sector’s competitive landscape is increasingly defined not just by the size of installed capacity, but by cost structures, energy efficiency, and supply chain optimisation. The significant shift occurring is from volume-led strategies to efficiency-led operating models, especially as decarbonisation priorities start to influence capital expenditure decisions.

CareEdge Ratings’ View

India’s cement sector is entering one of its most capacity-intensive phases, with ~180–200 million tonnes of fresh capacity expected to be added over FY26–FY28. While demand growth is projected to remain healthy at ~7.25–8.25%, supported by the Union Budget’s continued thrust on infrastructure capex, urban development and housing, pan-India capacity utilisation is unlikely to sustainably exceed ~75% in the medium term. As a result, pricing power is expected to remain constrained, with FY26 realisations likely to record only low single-digit year-on-year improvement despite easing cost pressures.

FY26 is shaping up as a transitional year for the sector, marked by recovering demand, firmer margins and a back-ended improvement in realisations, offset by an expanding supply pipeline. The medium- to long-term outlook remains favourable, underpinned by structurally low per-capita cement consumption in India and the Budget’s renewed emphasis on large-scale public infrastructure, transport corridors, urban renewal and affordable housing, which collectively provide strong demand visibility over the next decade.

However, the next two years will require a careful balancing of growth ambitions and financial discipline, as companies navigate one of the most aggressive capex cycles in recent years. Sustaining profitability will hinge on operational efficiency, cost control and measured competitive behaviour, particularly in a market where capacity additions are front-loaded.

From a credit perspective, the sector remains on a stable footing. Large producers continue to benefit from conservative leverage profiles and healthy operating cash flows. Net debt-to-EBITDA for listed players, which rose to ~1.3–1.5x in FY25 amid margin pressure and capex outflows, is expected to improve to below ~1.2x in FY26 on the back of margin recovery and stable volumes. Mid-sized players have seen near-term relief from improved realisations and softer fuel costs, though heightened competition and elevated working capital requirements remain key monitorables.

Capacity additions are expected to accelerate, led by large players, with inorganic expansion playing a growing role over the medium term. Overall, the sector’s credit profile should remain stable, supported by strong balance sheets and internal accruals adequate to fund planned capex. That said, the ability to implement sustainable price increases and lift EBITDA per tonne beyond the ₹1,000 mark will be critical. Any widening demand–supply mismatch or slower-than-expected profitability improvement, especially amid high capex intensity, could exert pressure on coverage metrics.