Cement makers struggle despite robust growth of construction sector in GDP

The cement industry combined net sales declined to Rs 2.1 trillion in FY25 from Rs 2.22 trillion in the previous year

India’s cement industry is struggling to grow volumes and revenue despite a robust expansion in the country’s construction sector.

 

Combined revenue of cement makers -- both listed and unlisted, with FY25 figures available -- declined 6.9 per cent year-over-year, marking a sharp reversal from 8.7 per cent growth in the previous year. It was the first annual revenue contraction in this industry in two decades.

 

By contrast, the construction sector, based on gross domestic product (GDP) estimates, expanded 9.4 per cent in FY25 at current prices, slightly down from 10.6 per cent growth a year earlier, according to Reserve Bank of India (RBI) data.

 

The cement industry’s aggregate net sales fell to ₹2.1 trillion in FY25 from ₹2.22 trillion the previous year. Meanwhile, construction-sector output rose to ₹15.72 trillion from ₹14.38 trillion.

 

Listed cement companies fared comparatively better, though they too recorded a 4.3 per cent decline in net sales to ₹1.85 trillion from ₹1.93 trillion, marking the industry’s first revenue contraction since at least FY04. 

 

Of the 18 listed companies in Business Standard’s sample, 13 reported a year-over-year decline in net sales in FY25. Several smaller firms posted double-digit contraction, underlining the scale of the slowdown. The two largest producers, UltraTech Cement and Ambuja Cements, bucked the trend and logged revenue gains fuelled by mergers and acquisitions. UltraTech completed acquisitions of India Cements and Kesoram Industries’ cement division, while Ambuja closed deals for Penna Cement and Sanghi Industries.

 

Historically, revenue growth in the cement sector has closely tracked construction growth at current prices. Over the past 20 years, the construction segment in GDP expanded at a compound annual growth rate (CAGR) of 12.4 per cent, while cement revenue rose at 11.1 per cent. That correlation appears to be weakening. From FY20 to FY25, construction expanded at a 13.8 per cent CAGR, but cement companies’ net sales grew at just 6.4 per cent.

 

The analysis is based on data from 35 cement firms, including 18 currently listed. The remainder are unlisted, have merged, or ceased operations.

 

Analysts attribute the revenue decline last financial year to falling prices amid a surge in supply. “Cement prices fell 5 per cent-6 per cent year-over-year in FY25, the sharpest decline in 20 years,” said Khushbu Lakhotia, director of Corporate Ratings at India Ratings & Research. “The drop was driven by an intensified market share rate, as additional supply growth outstripped demand. Southern India witnessed the most pronounced price contraction, followed by the eastern region.”

 

According to the ratings agency, overall cement demand rose 5 per cent-6 per cent in FY25, its slowest pace since the pandemic-hit FY21. 

 

The sluggish environment has prompted some companies to delay capacity expansion. Shree Cement, India’s third-largest producer, deferred the commissioning of a 3 million tonne-per-annum grinding unit in Jaitaran, Rajasthan. The company posted a 6 per cent decline in net sales in FY25, its weakest performance in years.

 

“The revenue growth remains weak due to subdued demand, lower government capex, and heightened competition, despite Q4 traditionally being a volume-driven quarter due to year-end sales,” said Girija Shankar Ray of Yes Securities, in the firm’s Q4FY25 earnings preview.

 

Weaker top-line growth has also hit profitability. Combined net profit of listed cement companies declined 14.2 per cent year-over-year to ₹12,852 crore in FY25.