Cement Sector : Q4FY25 Cement Review – Performance Better Than Expected; Outlook Remains Positive By Axis Securities Ltd
* Financial Performance
• Companies under coverage delivered YoY growth of 12% in volume, 10% in revenue, and 12% in EBITDA, outperforming expectations. PAT declined 4% YoY, which was better than the expected 10% drop. This compares to forecasted growth of 10% in volume, 8% in revenue, and 6% in EBITDA.
• EBITDA/tonne during the quarter improved notably. EBITDA margins expanded by 40 bps YoY, supported by higher volumes and operating leverage. Sequentially, margins improved sharply by 540 bps, driven by a 4% increase in realisation per tonne to Rs 5,561 across the coverage universe. EBITDA per tonne rose to Rs 1,081, marking a 30% QoQ and 5% YoY increase, with operating leverage playing a key role in the improvement.
• Realisation per tonne improved by 4% QoQ but declined by 1% YoY to Rs 5,561, as most regions experienced a rise in cement prices. Cost per tonne was Rs 4,480, showing a 2%/3% decrease YoY/QoQ, as power and fuel costs softened by 7% to Rs 1,010 per tonne.
• Performance across the coverage universe was largely in line with expectations. Notable outperformance came from JK Cement, Birla Corporation, Shree Cement, Ambuja Cement, and Star Cement. UltraTech Cement and Dalmia Bharat Limited delivered stronger margins, while ACC Limited, JK Lakshmi Cement, and Heidelberg Cement posted mixed results.
• During the quarter, UltraTech Cement and Dalmia Bharat Limited commissioned 6.3 mtpa and 2.9 mtpa of new capacity, respectively. Birla Corporation and Dalmia Bharat also announced fresh expansion plans of 6.2 mtpa and 6 mtpa. Previously announced capacity additions are on track, though JK Lakshmi Cement may face some delays.
• Management noted that cement prices have improved since Q4FY25 exit levels, and they expect demand to strengthen in FY26. This optimism is driven by rising government infrastructure spending, along with a recovery in housing, industrial, and commercial demand.
Outlook
Better Realisation & Improved Demand Supported Overall Performance
In Q4FY25, cement volume for our coverage universe grew by 12%, surpassing our expectations. Realisations improved by 4% as cement prices increased, while operating costs reduced by 2%/3% YoY/QoQ. We anticipate better operating performance from cement companies in FY26, supported by improved pricing, higher government spending on infrastructure projects, and housing demand. Cement demand better than expectations:
• Cement demand picked up in Q4FY25 after a weak first half, which had been hit by extreme weather, the general election, and labour shortages. The rebound was driven by increased government capital spending, a revival in rural demand, and the release of pent-up demand, helping offset the subdued performance earlier in the year.
• We expect cement demand to remain robust in FY26, underpinned by continued government investment in infrastructure, steady housing demand, and a recovery in rural spending. These tailwinds position the industry for strong performance, and we project double-digit volume growth for our coverage universe.
• The industry added approximately 30–35 MTPA of new capacity in FY25, with a further ~40 MTPA expected in FY26. This sustained capacity expansion reflects confidence in long-term demand growth and continued investment momentum across the sector. Cement prices
• Cement prices declined by 1% YoY but improved 4% QoQ and are currently higher than the average Q4FY25 prices by Rs 100/tonne.
• Market dynamics and the demand-supply scenario will dictate the pricing environment.
Input Cost
• The softening of power and fuel costs positively impacted the operational performance of cement companies in Q4FY25. During the quarter, power and fuel costs decreased by 7% YoY to Rs 1,010/tonne for our coverage universe.
• Power and fuel costs are expected to stay broadly in line with Q4FY25 levels, with only a slight uptick. While pet coke prices saw a recent spike to $120, they have since moderated, and diesel prices remain stable. Raw material costs are also projected to hold steady, supporting cost efficiency and margin stability in the coming quarters.
• We remain positive as long-term demand drivers are intact and expect cement demand to grow at a CAGR of 7%-8% over FY24-27E. Sector consolidation is expected to benefit large players through economies of scale, supply chain efficiency, and better pricing in the long term. Despite ongoing capacity additions, we believe long-term cement demand will outpace supply.
• Cement prices and trends in fuel costs will be key monitorable.
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