- Top picks: Ultratech Cement, ACC Cement, Birla Corp, Dalmia/Nuvoco, and JK Cement
Financial services firm Equirus Securities has released a press note on cement sector Q4 earnings review. As per the note, the sequential profitability improvement in the earnings of cement companies in Q4 is driven by healthy volume growth and price hikes, going forward FY26 is expected to see further recovery.
Demand recovery in Q4FY25
After a muted average volume growth for a 3/4th part of FY25, the Indian cement industry witnessed recovery in demand in 4QFY25, driven by recovery in B2G demand and IHB (rural in particular) as spending quantum improved QoQ. Top-16 listed cement players (~85% of industry sales volumes) saw an 10% YoY increase in 4Q volumes vs. only ~3% YoY in 9MFY25 and 1.5% in H1FY25 (a period impacted by elections and monsoons). Demand ahead is likely to be driven by expected pickup in government spending though spending priorities will remain a key monitorable, improved real estate demand post expected rate cuts and recovery in rural demand.
Top players gain continues with 6th consecutive quarter outperformance
Most of large players like Ultratech Cement, ACC Cement, and Shriram Cement reported volume growth of 17%/13%/3% respectively whereas Dalmia Bharat witnessed degrowth in volumes of 2% YoY majorly on discontinuation of tolling volumes from Jaypee assets; while among the rest of the industry, majority of the players witnessed average YoY volume growth of 7%.
Industry profitability improved sharply QoQ with EBITDA/t at Rs 794/t, majorly on rising prices (rising average 3% QoQ) across all the geographies except South India. South Indian region up to May has witnessed sustained price hikes of ~Rs.30-35/bag (down from Rs 60-65/bag) which may result in further profitability improvement in Q126.
Overall, Equirus Securities expects FY26 to be better both in terms of volumes and profitability with industry focused more on profitability with sustainable volume growth and increasing own efficiencies through organic expansion from earlier phase of acquisitions.
Top picks: Ultratech Cement, ACC Cement, and Birla Corp. Dalmia/Nuvoco (South India plays) and JK Cement (valuations slightly expensive) are also good plays.
Recent channel checks show relative sustainability in pricing vs. last year though some rollbacks have been witnessed recently on back of early monsoon arrival: Post witnessing marginal price hikes in 4Q25 (building on Dec'24 hikes) due to improving demand, channel partners pointed to some price rollbacks in North, Central and Western regions on back of lower-than-expected recovery in demand and prices hovering around 4Q25 exit levels. For South region prices saw a sharp uptick in April '25 though some rollback has happened leading to net current prices being Rs 30-35/bag higher vs. 4Q25 exit. East witnessed gradual rise in prices (Rs.8-10/bag) vs. 4Q25 exit prices. However, the channel now anticipates demand to remain rangebound till conclusion of monsoons (demand should still be better yoy compared to 1HFY24) and expects higher growth to kick in 2H26.
Most managements also see better industry volume growth in FY26 with 6-7% growth compared to average ~4-5% growth in FY25 on improving macros.
Industry operating margin recovers sharply qoq: Avg. EBITDA/t for the industry expanded 66% qoq driven by higher volume growth and improved realisations across most geos (+2% qoq). However, with volume growth cooling off qoq in 1Q26, operating margins might see some tapering off sequentially though it would differ company to company as they continue to prioritize internal cost saving measures like improving green power share, reducing lead distance and usage of higher alternate fuels. Companies in South and East may witness further improvement in their profitability qoq post healthy price hikes in Apr'25.
Equirus Securities' view on the cement industry: Post focus on consolidation by few industry leaders in FY25, Equirus Securities believe that the consolidation wave might take a breather in FY26 with focus now shifting towards sustainably improving operating profitability and ramping up utilization of the acquired assets rather than pushing higher volumes at lower prices. Equirus Securities expects demand to be better in FY26 with the government's infra push and the India growth story resonating well. Sustainability in further price hikes and industry's trade-off between maintaining prices and volume push would be closely monitored. RM prices are expected to remain benign.
Risks: (a) Sustained moderation in demand growth hurting the industry's ability to absorb incremental capacity and maintain pricing discipline. (b) Meaningful elevation in fuel/diesel prices. |
