India is looking at recovery

Published 10 January 2022

Tagged Under: India indian subcontinent 

India’s higher cement demand and production growth rates appear to be decelerating as the effects of a low comparison base began to wane towards the end of the 2QFY21-22. On the cost-front, headwinds continue to impact producer margins, giving rise to potential cement price increases to mitigate pressures.

Cement producers in India saw a surge in cement demand in the 2QFY21-22 but capacity utilisation rates

are not expected to surpass the 60 per cent mark for the rest of the year

A moderation in growth rates has set in for India’s 550Mta cement industry as the impact of a low comparison base due to the COVID-19 pandemic wanes. For the July-September 2021 quarter (2QFY21-22) growth decelerated to 22 per cent compared to 58 per cent in the 1QFY21-22. With the latest figures, the current year is forecast to see overall growth of 15 per cent, representing a three-year high. However, actual monthly production is still below pre-pandemic times. Factors such as an economic revival and how the new Omicron variant pans out will largely decide the cement sector’s growth prospects. In the coming months, a further moderation is expected in the absence of a low base and a more realistic picture is expected to emerge by the 1H22.

As monsoon rains faded, the first two months of the 2QFY21-22 saw a surge in cement demand in absolute terms. Government-backed infrastructure projects (particularly roads) remained a vital driving force. In addition, demand from the Individual Home Builders (IHB) segment, either for new construction or repair work, helped support consumption.

Cement prices, which have remained subdued for more than five consecutive quarters since the start of the pandemic, saw a sharp increase in October 2021, mainly on the back of rising input costs. Despite cement price hikes, coal shortages and high petcoke and diesel prices have put pressure on cement producer profit margins. Estimates suggest that to overcome these higher input costs, further cement price increases cannot be ruled out. The approaching peak construction phase amid several state elections in 2022 (see box story) and a fair geographical spread of monsoon rains that are lifting rural sentiment are likely to support cement prices.

Upcoming state elections

India is poised for several state-level elections in 2022, including some of the major states such as Uttar Pradesh, Punjab and Uttarakhand.

Given criticism of the government’s poor handling of the economic crisis due to the pandemic amid inflationary pressures and farmers’ protests, it is likely that the country may see several popular measures in the coming months. Furthermore, several unfinished projects that had been promised during the last elections are likely to see heightened activity. Typically, an election year bodes well for the cement industry.

It should also be noted that 2022 is a crucial year for the Modi-led BJP government at the centre. Several of the government’s projects are scheduled to complete this year.

Meanwhile, capacity utilisation is still nowhere near the optimum level. Even with a 15 per cent rise in production expected in 2021, utilisation will remain at ~60 per cent. With a near-halt on big-ticket expansion projects cement makers may well maintain a ‘wait and watch’ approach to see how the market dynamics play out before implementing future capex plans.

Over the last decade, with the exception of a few years, average cement demand growth has been less than five per cent against projected 8-10 per cent growth. This has made earlier growth projections irrelevant. Unless India’s GDP can be sustained above eight per cent for the next 3-5 years – the chances of which look highly unlikely – the cement industry’s higher growth projections remain a far cry from reality.

GDP growth trends

India’s GDP advanced by 8.4 per cent in the July-September 2021 quarter compared to a 7.4 per cent contraction a year earlier (see Figure 1). With GDP rising by 20.1 per cent in the April-June 2021 period, total GDP growth in the 1HFY21-22 was 13.7 per cent.

Figure 1: India’s quarterly GDP growth,

Oct-Dec 2019 - Jul-Sept 2021

Figure 2: India’s annual GDP growth, FY10-11 –FY20-21

While these numbers appear to be good, the low-base effect means that growth data are less promising. Economists are not fully convinced about the durability of the current recovery and are maintaining a cautionary stance. Assuming that recovery and revival will be achieved in the 2HFY21-22, India’s GDP expectations for the full fiscal year are marginally higher than pre-pandemic levels (ie, FY19-20). Demand and investment, particularly private expenditure, are still not experiencing a meaningful pick-up. Therefore, how the country’s economic growth will shape up in the next few years remains to be seen.

Cement production in 2QFY21-22

The Indian cement sector started the 2QFY21-22 quarter with 21.7 per cent YoY growth in July 2021, producing 29.51Mt versus 24.25Mt in the same month a year earlier (see Figure 3). Output accelerated to 36.3 per cent in August before easing to 11.3 per cent in the final month of the quarter. The high growth rates in the first two months of the 2QFY21-22 can be explained by the low base effect that had kicked in.

Overall during the 2QFY21-22, domestic cement production increased 22.4 per cent YoY, rising to 84.93Mt from 69.36Mt in the same period a year earlier (see Figure 4). However, on a sequential basis (83.78Mt in the 1QFY21-22), the increase was a mere 1.4 per cent – highlighting that the production growth rate is slowly returning to more normal levels.

Figure 3: monthly cement production in India, January-October 2021

Figure 4: quarterly cement production in India, Jul-Sep 2019 - Jul-Sep 2021

What is impressive and promising for cement producers is the fact that, despite the second quarter being traditionally affected by the monsoon season, cement demand remained strong. This underlines the fact that pent-up demand is slowly coming into play – a factor that is likely to work in favour of cement companies as they muster the courage to increase prices after the 2QFY21-22.

For the full-year 2021, total cement production is likely to surpass 330Mt compared to 290Mt in 2020.

Financial performance of key cement companies

Cement makers felt the pain of intense cost headwinds during the 2QFY21-22 on the back of higher input costs. Higher demand did help companies increase net sales, but margin pressures due to high costs and weak cement prices had an impact on profitability.

UltraTech Cement

UltraTech Cement, India’s largest cement maker with 112Mta of capacity, witnessed pressure on its financials due to uncomfortably higher input costs. The company posted flat net profit growth of INR13.14bn (US$173.38m) for the 2QFY21-22 versus INR13.09bn a year earlier. Net sales rose by 14.4 per cent YoY to INR117.43bn compared with INR102.64bn in the 2QFY20-21. Energy costs for the company increased by 17 per cent YoY during the quarter, mainly on the back of higher coal and petcoke prices.

On future growth prospects, UltraTech anticipates that a recovery in rural housing and a pick-up in infrastructure-led construction activities will help drive cement demand upward.


Holcim group company ACC posted a rise in consolidated net profit for the July-September 2021 quarter of 23.6 per cent to INR4.5bn. Net sales advanced by 5.3 per cent at INR36.53bn. Cement volumes were ahead by a mere 1.2 per cent to 6.57Mt.

In terms of the market outlook, ACC said that the government’s impetus on infrastructure and housing would bode well for the cement sector in the next quarters. The company remains positive that the sector will benefit from increasing demand in various sectors such as housing, commercial and industrial construction.

Ambuja Cements

Ambuja Cements, also part of Holcim, reported flat net profit during the 2QFY21-22. Standalone net profit of INR4.41bn remained the same as the corresponding quarter of the previous year. However, net sales grew by 14 per cent YoY to INR31.93bn versus INR28.02bn in the 2QFY20-21. The company sold 6Mt of cement, a rise of 5.8 per cent YoY.

Ambuja Cements also noted that government capital expenditure and reforms would augur well for cement demand. The company added that rural cement demand is expected to be buoyant on the back of a revival in agricultural activities.

Capacity utilisation pressures

Excessive capacity additions during 2007-12 and an additional capacity of over 200Mta in the last decade, combined with demand not meeting projected estimates have impacted cement utilisation rates. Lower utilisation due to lower-than-projected demand has been one of the main concerns for India’s cement producers for over a decade now. With production estimates of 333Mt in 2021 against a manufacturing capacity of 550Mta, the industry is likely to reel under pressure in terms of capacity utilisation. The current year will continue to see capacity utilisation of ~60 per cent.

In the next three years, until 2024, an additional 100Mta of capacity is estimated to enter service, taking the industry’s total capacity to 650Mta. If demand prospects do not improve, a mismatch between demand and supply will keep capacity utilisation rates low and prevent producers from making the most of their capital expenditure.

High input costs

Although the macroeconomic factors behind India’s cement industry remain positive and will be mainly driven by a revival in demand, the sector is currently riddled with cost-side issues. The key cost constituents are petcoke and international coal and diesel. The price of these three input costs increased by 20, 111 and 21 per cent, respectively, by the end of the 2QFY21-22 (see Figure 5) compared to March 2021. Cement makers are trying to mitigate costs by increasing efficiencies but these are still likely to be insufficient to fully offset higher energy and freight costs.

Figure 5: petcoke and diesel prices, January-October 2021

Meanwhile, the issue of rising input costs has been aggravated by an acute shortage of coal in India. Coal dispatches to sectors like the cement and steel industries have declined sharply. Several thermal power stations in the country were left with a few days of inventories, raising the issue of power cuts. Since the majority of cement makers had lower-cost inventory, the overall impact of an increase in input costs were quite visible in company financials. Furthermore, cement producers incur high transport and logistics costs – both in terms of manufacturing as well as distribution. A YoY hike of 22 per cent in diesel prices during the 2QFY21-22 has put considerable pressure on companies.

Cement prices

As previously mentioned, the September quarter is typically a rain-affected period resulting in low cement off-take and, therefore, subdued prices. However, this time around, despite high demand, cement producers eschewed price hikes and absorbed rising input costs to a large extent. During the quarter, the all-India average price of cement remained at INR353/50kg bag – the same as the previous corresponding period. However, compared with the 1QFY21-22, cement prices dropped INR8/bag, a decline of 2.2 per cent.

Table 1: cement price trends, Jul-Sept 2020 - Oct-Nov 2021


Cement price (INR/50kg bag)

Jul-Sep 20

Oct-Dec 20

Jan-Mar 21

Apr-Jun 21

Jul-Sep 21

Oct-Nov 21











































Source: cement dealers and analysts

All regions saw price decreases during the monsoon-hit months. While the southern market saw the steepest reduction of INR16 to INR362/bag compared with the 1QFY21-22, the east, west, central and north India markets witnessed corrections of INR2-6. Interestingly, despite the deep cuts in the south, cement prices in the region continued to remain the most expensive, ruling at INR362/bag.

Since the end of September there has been a positive upturn in cement prices. The all-India average cement price has jumped by 6.5 per cent YoY to INR373. On a sequential basis, there was a 5.6 per increase compared with the 1QFY21-22.

Further hikes on the horizon?

Higher input costs are likely to increase the cost of production by INR275-300/t of cement. As noted earlier, efficiency improvements alone will not be able to offset the impact of an increase in input costs. Consequently, cement producers have resorted to increasing prices but to a level that is still not sufficient.

According to cement analysts, if input cost pressures do not subside, another price hike will be seen in the next couple of months. With the average price already at INR373 (as at October-November 2021), and assuming a price hike of INR15-25 across the regions, the average price of cement could hit an all-time high of INR400/bag as India enters its six- month peak construction phase in January.


Higher government spending on infrastructure, low-cost affordable housing, as well as an expected revival in rural demand amid upcoming state elections are expected to drive cement demand in the coming years. Expectations are that 2021 cement consumption is likely to see growth of 15 per cent YoY. However, the growth rate is likely to ease to 8-9 per cent in 2022 as the impact of a favourable base year completely diminishes and a more realistic growth picture emerges.

With higher demand forecast, cement prices are likely to be sustained at higher levels. However if higher input costs are not arrested soon, this will necessitate passing on elevated costs to end-users. Cement prices may be heading to an all-time high if the recovery in demand continues unabated and input costs do not cool down.

Any economic shock resulting from the Omicron variant or an unstable government may destabilise the economy and therefore, have ramifications for the cement sector.

This article was first published in International Cement Review in January 2022.