What are your initial thoughts on the ongoing trade war and its impact on the cement industry?
The impact on the Indian cement industry is likely to be lesser. While India imports petcoke to some extent, most raw materials are sourced domestically. India's reliance on exports is about 20% of GDP, so the maximum impact would be within that range. The 90-day pause in the trade war and ongoing government negotiations might provide some relief.
The cement industry has witnessed a decline in prices over the last two years, impacting top and bottom lines. How do you see the overall situation evolving?
While FY23 saw around 10% growth and FY24 also around 10%, FY25 is expected to grow at about 5-5.5%. The profitability and price issues are due to competitive intensity and the demand-supply equation, which varies across different regions. Areas with a high demand-supply gap tend to have lower prices, while balanced regions see stable prices.
What's your outlook for FY26 for cement investors? Do you expect margin improvements?
Q1 FY25 was impacted by the general elections, and Q2 is typically a low-demand period due to the monsoon. This affected prices. However, demand has been improving in subsequent quarters, leading to better profitability and volume growth. I am optimistic that FY26 will see a 7-8% demand growth and improved margins as demand and pricing tend to move together. I believe the worst is behind us.
What are the major growth drivers for the cement industry in FY26?
The major growth drivers are housing (urban and rural, contributing 63-65% of demand with an expected 6-7% growth), infrastructure (contributing about 25% with a 7-8% growth rate), and commercial & industrial (up to 15% with around 6% growth). Government initiatives like the Rs 9.3 lakh crore capex, focus on urban and rural housing, airport expansion to 200, metro projects, and national highway development will further drive demand.
What is your view on handling competition, especially with ongoing consolidation in the sector?
The Indian cement industry is quite fragmented, leading to acquisitions, particularly in certain regions. We focus on our internal capabilities like innovation, differentiated products and services, and providing value to customers. We've launched products like Green Plus (a "green cement") and Pro Plus (a premium product for individual home builders). We also focus on renewable energy and carbon footprint reduction, aiming for carbon neutrality by 2047. Diversifying our portfolio with products like old cement and AAC blocks is another strategy. We compete by focusing on these internal strengths rather than solely on acquisitions.
With premium products reporting higher margins for other players, what kind of growth and contribution do you expect from your premium portfolio?
Our premium product, Pro Plus, offers value beyond just price. We are happy that our premium product proportion within our trade portfolio (which is 58-60% of overall volume) is over 25%. This translates to about 15% of our total volume coming from premium products, which is quite significant compared to other players.
What are your capex plans for the coming year?
We currently have a capacity of 18 million tons and plan to reach 30 million tons by 2030. We've announced a 4.6 million tonne expansion in the East, expected around FY27-FY28. We've also acquired mining lease rights in Rajasthan and Gujarat, where we plan to add 3 million tons. Additionally, we plan an integrated and grinding unit in the Northeast (starting with 2.5 million tons) and a third line at our Udaipur subsidiary (around FY29-FY30). These expansions will help us reach 31-32 million tons by FY30, with a realistic target of 30 million tons. The announced 4.6 million tonne expansion in the East involves an investment of about ₹2,500 crore. A general thumb rule for an integrated unit is ₹1000-₹1200 crore per million ton, but this depends on inflation and other factors.
You have no plans to enter the South market anytime soon?
Our current focus is to strengthen our position in the markets where we currently operate and become a relevant player. While the South market has a significant demand-supply gap, our priority is consolidation in our existing areas. We might consider the South in the future if opportunities arise, but it's not in our near-term plans.
What is the average capacity utilization for the industry and for JK Lakshmi specifically?
JK Lakshmi has consistently maintained good capacity utilization, typically above 75%, which is higher than the India average. The India average was around 65-67% recently, and about 69% last year. The reason for the average being lower than potential demand (even at 10% growth) is the cyclicality of the industry. Demand drops significantly (30-35%) during the monsoon and Diwali periods and peaks (110-120%) from January to June. Building capacity solely for peak demand would lead to underutilization during off-peak seasons. Additionally, the long gestation period (4-5 years) for setting up a cement plant requires futuristic planning. Therefore, I don't expect India's cement capacity utilization to consistently exceed 70-75%.