Low capex intensity and strong balance sheets to keep credit profiles stable
Indian cement makers are slated to undertake capital expenditure (capex) worth ~Rs 1,25,000 crore over fiscals 2025-2027, driven by healthy demand outlook and quest for market share.
The projected outlay will be 1.8 times the capex during the past three fiscals, yet the credit risk profiles of manufacturers will remain stable. This is owing to their continued low capex intensity1 and solid balance sheets with financial leverage2 sustaining below 1x on the back of strong profitability.
A CRISIL Ratings analysis of 20 cement makers, accounting for over 80% of the industry's installed cement grinding capacity as on March 31, 2024, indicates as much.
A healthy ~10% annualised increase in cement demand in the past three fiscals outpaced growth in capacity addition, pushing utilisation level to a decadal high of ~70% in fiscal 2024 and prompting manufacturers to press the capex pedal.
Says Manish Gupta, Senior Director and Deputy Chief Ratings Officer, CRISIL Ratings, "Cement demand outlook remains healthy with a compound annual growth rate of ~7% 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."
Yet the credit profiles of CRISIL Ratings-rated cement manufacturers will remain stable because capex intensity of the cement industry is still low and likely to remain range-bound at 0.7-0.9 time during fiscal 2025-2027 (similar to that in the past three fiscals), owing to the sustenance of healthy operating profitability and ramp up of newly commissioned facilities.
Says Ankit Kedia, Director, CRISIL Ratings, "The low capex intensity will keep the balance sheets of manufacturers strong and ensure stable credit profiles. Over 80% 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. Moreover, existing cash and liquid investments of over Rs 40,000 crore will provide a cushion in case of implementation-related delays." |
