On the back of a healthy demand outlook, the Indian Cement makers are set to undertake Rs 1.25 lakh crore worth of capital expenditure (capex) over the next three financial years (FY25 to FY27), according to a report by Crisil Ratings. However, the credit profiles of cement manufacturers are likely to remain stable.
Crisil Ratings reported that the credit risk of manufacturers is expected to be stable, even though the outlay is 1.8 times higher than the capex in the last three financial years (FY22 to FY24). The reason for such stability is attributed to low capex intensity which is likely to remain range-bound at 0.7-0.9 time over the next three years, due to the sustenance of healthy operating profitability.
The utilisation level in fiscal FY24 was pushed to 70 per cent as the cement demand witnessed a 10 per cent annualised increase in the past three years which outpaced the rate of capacity addition, as per crisil Ratings.
“Cement demand outlook remains healthy with a compound annual growth rate of 7 per cent over fiscals 2025-2029. The surge in capex over the next three fiscals will primarily cater to this growing demand as well as to the aspirations of the cement makers to improve their national presence. A total of 130 million tonne (MT) of cement grinding capacity (nearly a fourth of the existing capacity) is likely to be added by players over this period,” said Manish Gupta, Senior Director and Deputy Chief Ratings Officer, Crisil Ratings.
Crisil has projected the financial leverage of the cement makers to remain strong below 0.8 time in the financial year 2027, same as FY24. It is measured by the net debt to Ebitda (earnings before interest, taxes, depreciation and amortisation). However, Crisil has mentioned that the credit profiles will depend on the cement players’ growth aspirations.
“The low capex intensity will keep the balance sheets of manufacturers strong and ensure stable credit profiles. Over 80 per cent of the projected capex over the three fiscals through 2027 is likely to be funded through operating cash flows, resulting in minimal requirement of additional debt,” stated Ankit Kedia, Director, Crisil Ratings.
