In the Indian cement industry, it is expected that the increase in production capacity will exceed demand growth over the next two financial years, which could potentially lead to a decrease in capacity utilization rate and price pressure in some regions.
Despite this, it is projected that the capacity utilization rate will remain above its long-term average level, limiting the risk of serious overproduction across the entire industry. Faster supply growth may restrain stock prices, even if the Nifty Cement index is at a three-month low, unless companies can achieve faster profit growth.
According to Anand Kulkarni, Director at Crisil Ratings, the installed capacity of the domestic cement industry was estimated at 720-730 million tonnes (MT) as of March 2026. Approximately 55 MT of capacity was added in the 2026 financial year, with another 115-125 MT expected to be added during the 2027 and 2028 financial years.
According to Crisil, cement production volumes grew at a Compound Annual Growth Rate (CAGR) of 5.5-6 percent between the 2025 and 2026 financial years, which generally matched the actual capacity increase and maintained the utilization rate at around 70 percent, similar to 2025. Since capacity growth is expected to outpace demand in 2027 and 2028, the utilization rate may drop to 68-69 percent.
Kulkarni noted that 'cement capacity additions tend to be large due to long implementation timelines, and large additions can lead to a supply-demand imbalance in the short term.' He also added that in the medium term, demand and supply growth are expected to remain balanced.
Mohit Kapur, Associate Director of Investment Banking at Equirus Capital, forecasts that cement demand will grow by 7-8 percent over the next two to three years, slightly outpacing GDP growth, while capacity is expected to increase by 8-9 percent annually. He stated that the current capacity utilization rate of around 69 percent could decline by 100-150 basis points over the next two to three financial years.
Kapur also highlighted the presence of price (cost) pressures, particularly on the fuel side. He noted that the expected supply growth exceeding demand growth in the short term could cause some price pressure.
Expansion is also becoming increasingly concentrated among large players. According to Akshay Shetty, Analyst at Mirae Asset Sharekhan, the five largest cement companies are expected to have a combined capacity of 465-470 million tonnes per annum (MTPA) in the 2026 financial year, increasing to 580-590 MTPA by the 2028 financial year.
Nevertheless, cement companies remain confident in demand growth and capacity utilization. Jayakumar Krishnasamy, Managing Director of Nuvoco Vistas, stated in an interview with Business Standard in July that although almost every cement company announced expansion plans about a year ago, there has been more realism in the industry since then.
He added that 'the industry's expansion plans reflect long-term confidence, not short-term demand fluctuations.' Atul Daga, CFO of UltraTech Cement, said during the company's first quarter 2027 earnings call in July: 'Demand remains strong. The problem is we don't have the capacity. We must expand.'
Vinod Baheti, Permanent Director and CEO of Ambuja Cements, stated that long-term fundamental demand indicators in India remain attractive due to investments in infrastructure, urbanization, industrialization, logistics, and the housing sector.
Analysts believe that regional markets may face different consequences. Kapur expects North, West, and Central India to face a lower capacity utilization rate over the next two to three years. The maximum capacity increase is expected in the North, followed by the South and East, while demand growth is expected to be relatively stronger in the East and Southeast.
Shetty noted that the South remains a fragmented market with a utilization rate in the mid-50s and is likely to continue facing price pressure. The North is also becoming a concern as large players add new capacity, which could potentially put pressure on prices and affect established players like Shree Cement.
Satyadip Jain, Lead Analyst for Cement, Metals, Mining & Commodities and Utilities at Ambit Institutional Equities, stated: 'The main issue is the North region, where capacity growth was moderate for 7-8 years but is now accelerating. The North region is poised to increase cement capacity by 38 percent or nearly 50 MT between the 2025 and 2028 financial years.'
Crisil reported that average cement prices across India rose by 4-4.5 percent sequentially in the first quarter of 2027, partly due to the partial pass-through of higher costs for fuel, packaging, and freight. In the 2027 financial year, prices adjusted for the reduction in Goods and Services Tax are expected to rise by 1-3 percent, while increased input costs could reduce operating margins by 50-75 rupees per tonne.
Shetty expects price discipline to be maintained in North and Central India during the 2027 financial year, while South India is likely to continue facing weak prices. A risk remains of an overall Indian revenue decline of 2-3 percent if demand disappoints.
Jain concluded that 'sector profitability is currently at the bottom of the cycle due to cost increases of 400 rupees per tonne. Utilization rate does not determine profitability. While the utilization rate improved between the 2021 and 2024 financial years, profitability remained under pressure due to the Russia-Ukraine war and fuel inflation.'