Whalesbook
CLSA Senior Research Analyst Indrajit Agarwal forecasts a 6-8% demand recovery in India's cement sector in the second half of the year, with industry pricing potentially surprising positively in calendar year 2026. He noted that demand was better than expected in the September quarter and expects construction activity to pick up due to drier months ahead. Agarwal also offered cautious views on the steel sector due to Chinese exports and noted that consumer durables demand remains soft.
Indrajit Agarwal, Senior Research Analyst at CLSA, speaking at the CITIC CLSA India Forum 2025, anticipates a significant demand recovery in India's cement sector during the second half of the current year, projecting growth between 6-8%. He indicated that pricing within the industry might also see a positive surprise in calendar year 2026.
Agarwal explained that cement demand experienced a slowdown for five to six quarters, attributed to factors like elections, monsoons, and subdued consumer sentiment. However, the September quarter showed a better-than-expected performance. Government capital expenditure (capex) trends also remained steady, supporting demand.
With an upcoming period of drier weather lasting approximately six months, Agarwal expects construction activities to accelerate. He highlighted that the growth in H2 will be primarily driven by large players who have expanded their capacities through organic growth or acquisitions.
The structure of the cement industry has undergone changes, with about 10-11% of capacity changing hands over the last three years. The top five players now command over 80% market share in most regions. While organic expansion contributes to stable pricing, inorganic expansion can sometimes pressure it. Nevertheless, Agarwal foresees a favourable shift, particularly for pricing as 2026 approaches. He also noted that pricing during the monsoon quarter held up better than usual, with only a 1% price correction instead of the typical 2-4%.
Regarding consolidation, Agarwal mentioned that a few assets are still available but are already operating at high utilization levels. If acquired by major existing players, significant market disruptions are not anticipated. Any improvement in prices is expected to directly boost profitability.
Agarwal expressed caution regarding the steel sector. He pointed out that China's steel exports are projected to surpass the 2015-16 peak of 100 million tonnes. India faces temporary over-capacity, particularly in flat steel. If safeguard duties are not extended, domestic prices could come under pressure. He forecasts a potential pressure on steel prices in the next couple of months and assumes a 5-6% price increase by FY27, noting that any shortfall could impact earnings estimates.
On consumer durables, Agarwal stated that categories tied to seasonal demand, such as air conditioners, are still experiencing weakness. Cooler weather and high inventory levels are delaying consumer purchases. Although tax cuts and lower lending rates are supportive, he anticipates another soft quarter. He recommends a preference for diversified companies with exposure to late-cycle categories rather than those solely reliant on one or two seasonal segments.
Impact
This news has a moderate impact on the Indian stock market, primarily affecting the cement, steel, and consumer durables sectors. Investors may see opportunities in cement due to expected demand and pricing improvements, while caution is advised for steel due to import pressures. Diversification strategies are highlighted for consumer durables. Rating: 6/10.
Difficult Terms
Capital Expenditure (Capex): Money spent by a company to acquire, upgrade, and maintain physical assets like property, plant, or equipment.
Organic Expansion: Increasing a company's size or revenue through internal growth, such as increasing production capacity or developing new products.
Inorganic Expansion: Increasing a company's size or revenue by acquiring other companies or their assets.
Utilization: The rate at which a company's production capacity is being used to meet demand.
Safeguard Duties: Tariffs imposed by a country on imports of a specific product when the domestic industry is being harmed by a sudden surge in imports.
Flat Steel: Steel products that are rolled into flat sheets or plates, commonly used in automotive, construction, and appliance manufacturing.
Seasonal Demand: Demand for a product or service that fluctuates predictably with the seasons of the year (e.g., air conditioners in summer).
Late-cycle categories: Products or services whose demand tends to increase as an economy moves further into an expansionary phase.
