Cement stocks: The next big opportunity?

livemint.com:

MUMBAI : When we talk about sectors with potential, the Indian cement industry might not be the first thing that comes to mind. But if you’re looking for value and long-term growth, it’s a sector worth your attention. Despite recent challenges, such as slowing demand, falling cement prices and profitability pressures, the cement industry has a lot going for it.

For savvy investors, it could be one of the most undervalued opportunities. First things first: Demand growth in the cement sector has hit a bit of a speed bump. In the first quarter of 2024-25, the industry only managed a 3% year-on-year (y-o-y) growth, which is slower than seen in recent years (two-year compound annual growth rate, or CAGR, comes up to about 7-8%).

Factors like extreme weather conditions (the heatwave in the summer) and the general elections have played a big role in this slowdown. But here’s the thing—this isn’t a permanent setback. Companies with strong capacity additions, especially those with exposure in the northern and central regions, are still growing faster than the market.

Meanwhile, the South is struggling a bit, but that’s not a story that will last forever. Demand is expected to pick up in the second half of the year, particularly after the festive season in mid-November. The monsoon season and delays in government projects have been a drag, but those are temporary issues.

We’re talking about mid-single-digit growth in FY25 and a stronger 7% growth in FY26/27. In FY24, India started with a cement capacity of 585 million tons and ended with 626 million tons installed. The estimated demand for the last fiscal year was around 425 million tons, which means the industry was operating at roughly 70% capacity utilization.