India’s cement industry is encountering difficulties from weak pricing influence and escalating expenses, even as demand holds strong, as outlined in a report by HDFC Securities.
The firm observed that the sector probably experienced price declines in the quarter ending March and anticipates this trend to persist into the next period, compounded by supply chain issues stemming from conflicts in West Asia.
Although demand prospects remain solid, the industry is poised to encounter obstacles ahead, including higher expenses for energy and packaging.
The report states that while cement demand is holding up well, the ability to set higher prices has been disappointing, even with industry mergers.
HDFC Securities projects an uptick in energy expenses of about Rs 200-300 per metric ton and packaging costs of around Rs 100 per metric ton starting from the middle of the first quarter of fiscal year 2027, worsened by instability in the Gulf area.
Performance in the cement sector for the March quarter of fiscal year 2026 was uneven. Demand strengthened from December 2025, with sales to non-retail channels staying robust. However, prices stayed low, showing only inconsistent improvement in retail segments.
The firm pointed out that cement prices fell short in the fourth quarter, with both retail and wholesale rates dropping below levels adjusted for tax changes in the prior quarter.
Profit margins saw limited growth, with earnings before interest, taxes, depreciation, and amortization improving by just about Rs 100 per metric ton from the previous quarter to roughly Rs 970 per metric ton. This was linked to inadequate transfer of elevated input expenses to customers.
Looking ahead, HDFC Securities forecasts margin increases of Rs 120, Rs 60, and Rs 95 per metric ton for fiscal years 2026, 2027, and 2028, respectively. Nonetheless, it cautions that price adjustments may not keep pace with rising costs, complicating efforts to sustain profits.
Volume growth in the sector was strong in the fourth quarter of fiscal year 2026, with total output up by approximately 9% compared to the previous year. Pricing challenges are expected to linger, with recent increases of Rs 10-30 per bag in various areas under review after mid-April.
In this tough landscape, the firm advises focusing on companies with solid financial positions and effective operations. It has reduced target prices for multiple cement firms, due to slower margin recovery and expansions in production capacity. (ANI)
