Cement, steel, aluminium & EMS: CLSA’s Indrajit Agarwal breaks down sector winners and risks – News Air Insight

Cement demand and pricing trends surprised on the upside in Q2, despite the monsoon-driven seasonality that typically weighs on the sector, says Indrajit Agarwal, Lead – India Materials, EMS and Consumer Durables, CLSA. Speaking to ET Now, Agarwal noted that volumes in the second quarter grew in the mid-single digits—better than initial expectations—while price corrections were limited to under 1%, far lower than the usual 2–3% sequential drop.

Agarwal attributes this resilience to broad-based demand recovery, with housing, government capex and rural markets all performing better sequentially. Strengthening consolidation has also boosted pricing discipline. Over the past 24 months, 10–12% of industry capacity has shifted to large players, with Adani and Birla groups now dominating most regions. Even historically fragmented markets like South India are seeing consolidation, improving pricing power.

On capex, Agarwal believes private-sector utilisation is gradually inching up, though still below the 80% threshold that triggers aggressive expansions. Government capex and housing remain the primary growth engines for cement consumption.

Will overcapacity return?

Agarwal says overcapacity will persist structurally, with utilisation around 70% today. But because new organic expansions are largely driven by the biggest players, pricing pressure may remain limited. CLSA expects cement prices to grow 1.5–2% annually—lower than inflation—but still strong enough to drive earnings upgrades.

Steel & aluminium outlook: Cautious in the near term

In contrast, metals face a global drag. Agarwal flagged China’s massive steel exports—110–120 million tonnes this year—as a key risk that could depress global prices. Domestic mills also face near-term oversupply due to aggressive capacity additions.

Even if safeguard duties are extended, Indian steel prices are unlikely to decouple meaningfully from global trends, he said. Meanwhile, the post-2030 mining policy resets could raise iron ore costs for steelmakers who enjoyed legacy captive mines, increasing margin pressure.

EMS: A 15-year, high-growth opportunity

Agarwal remains strongly bullish on India’s electronics manufacturing services (EMS) sector, calling it a 15–18% dollar-revenue CAGR story for the next decade and a half driven by massive import substitution. With 600–700 PCB assembly players, the sector is ripe for consolidation and inorganic expansion.He emphasised that investors should not evaluate EMS companies quarter-to-quarter, as that approach “will never help you justify valuations.” Instead, the long-term view, total addressable market (TAM), free cash flow generation and management strength should guide stock selection.