The domestic cement sector is entering a seasonally stronger period with signs of relatively healthy demand and better pricing momentum. A recovery in demand is seen in the second half of FY27, driven by infrastructure execution, housing activity, and private-sector spending, according to brokerage firm Motilal Oswal.
The brokerage expects the pace of improvement to vary across regions, and believes margin recovery is likely to remain gradual, as elevated fuel costs and regional competitive intensity could continue to constrain spreads.
Amidst this backdrop, companies with a well-diversified regional presence, higher operating leverage, and effective cost optimisation initiatives, including higher use of renewable power, fuel mix optimisation are relatively better positioned to navigate the current cost environment, Motilal Oswal said.
The brokerage has picked UltraTech Cement amid large caps, and JK Cement and JSW Cement among midcaps.
Price hikes of Rs 10-15 per bag implemented across markets in early October have largely sustained, and further price increases are expected after the festive season to pass on higher input costs.
“Industry demand remained resilient in October as monsoon disruptions eased and construction activity picked up across regions. The South and North witnessed relatively stronger demand; however, the West, East and Central regions saw a gradual recovery,” it said.
In South India, the average cement price increased by Rs 11/bag or 4% month-on-month in October. Relatively stronger hikes were implemented in Hyderabad and Andhra Pradesh of Rs 20/bag, while Chennai and Bengaluru witnessed price hikes of Rs 10/bag.
In the East, average cement prices increased by Rs 13/bag, or 5%, in October, following weak pricing during the September quarter. “Non-trade prices also increased by Rs 20/bag, led by bulk demand and infrastructure-led sales. However, competitive intensity and negotiated project rates remain key monitorables for sustaining current prices,” the brokerage said.
Average cement price rose Rs 8/bag, or 3%, last month in West India, led by price hike across Maharashtra and Gujarat markets. Further hikes are unlikely in the near term due to a temporary impact on cement demand amid labor migration and deficient rainfall.
In the North, cement manufacturers implemented two rounds of price hikes of Rs 5/bag each during October. In the Central region, prices were increased by Rs 4/bag, or 2%, indicating relatively modest pricing improvement compared with the North.
Fuel prices remained elevated with imported petcoke price at $188-190 per tonne, South African petcoke at $128 per tonne. However, the sharp correction in crude oil prices to $96 per barrel provides a favorable backdrop for fuel cost moderation, although the benefits are likely to materialise with a lag, the brokerage said.
“Petcoke is a by-product of crude oil refining, which creates a natural correlation between global crude oil prices and petcoke prices. With crude prices declining, petcoke prices are expected to follow a similar trend, albeit with a lag. Likewise, coal prices also move in the same direction given the substitution effect across fuels used in the power and industrial sectors,” Motilal Oswal said.
Motilal Oswal highlighted temporary construction bans to curb pollution and prolonged monsoon-related disruptions, which can lead to drought conditions, as some of the key risks to its outlook.
Any delays in infrastructure project execution can dampen the demand momentum and weigh on volume growth in the near term.
As the domestic cement sector enters a seasonally stronger period, signs of improving demand and higher prices have emerged. Fuel costs are also expected to ease after the sharp correction in crude oil prices.