Cement Sector May Return to Its Average Profitability Level in FY 26, Says Crisil Report

Mumbai, 8 July 2025: India’s cement industry is expected to return to its 10-year average profitability levels in FY26, buoyed by improved demand and better price realisations, according to a report by Crisil Ratings. After a muted performance in FY25, the sector is set to benefit from rural housing growth and controlled input costs, supporting a recovery in margins and financial stability.

Demand Set to Rebound After FY25 Slowdown Dampened Growth

Crisil projects cement demand to grow between 6.5–7.5% in FY26, up from a modest 5% in FY25. The previous fiscal had a sluggish start, with growth at just 2–3% in the first half due to a temporary construction slowdown linked to general elections and erratic monsoons. However, demand strengthened in the second half, setting the stage for a stronger performance in the current fiscal.

This demand revival, coupled with improving price trends, is expected to boost operating profitability by ₹100 per tonne, slightly surpassing the sector’s decadal average, the report highlighted.

Rural Housing Growth Emerges as the Key Demand Driver for Cement

According to Sehul Bhatt, Director at Crisil Market Intelligence, rural housing is forecasted to grow at 7–8% in FY26, playing a crucial role in cement consumption. This segment accounts for nearly one-third of total cement demand, and its growth is being supported by:

• A favourable monsoon, which is likely to improve farm incomes
• Lower interest rates and tax reliefs
• Controlled inflation, boosting purchasing capacity in rural areas

In contrast, the infrastructure sector, which contributes around 30% to total cement demand, is expected to expand at a slower pace. This is due to fewer highway project approvals and muted capital allocations for railways over the past two years.

Price Gains and Efficiency Measures Expected to Support Margin Expansion

Cement prices saw an uptick in Q1 FY26 and are expected to increase by 2–4% over the year, reversing the trend of flat pricing in the last two years. Crisil estimates that operating profit will rise to ₹975–1,000 per tonne, compared to ₹880 in FY25 and the 10-year average of ₹965.

Anand Kulkarni, Director at Crisil Ratings, noted that:

• Stable fuel and power costs and a greater shift to green energy are expected to reduce operational expenses
• These gains will likely balance out the impact of ₹20–30 per tonne hikes in raw materials like limestone, fly ash, and slag

Such cost efficiencies are anticipated to enhance internal cash generation, reducing the industry’s dependence on external borrowing for capital expenditure.

Key Risks Could Challenge Profitability Momentum Despite Strong Outlook

Crisil also identified potential risks that may affect the sector’s growth trajectory:

• An extended monsoon season could cause construction delays
• Lower public spending on infrastructure may limit demand
• Geopolitical uncertainties could trigger commodity and energy price volatility, squeezing margins

Still, Crisil’s evaluation of 17 cement companies, which together represent more than 85% of India’s cement sales volume, indicates that credit profiles remain stable. This is supported by strong balance sheets, steady cash flows, and manageable leverage across the sector.

The outlook suggests that while challenges remain, the cement industry is on a firm path to regain financial resilience and profitability in FY26, supported by structural demand and operational efficiencies.

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