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South drives cement price gains, though demand remains tepid

All-India average cement price up INR16/bag (~5%) QTD

Cement pricing has held up well, and the all-India average price has risen by INR5/bag (~1%) MoM in May’25 and by INR16/bag (~5%) QTD in 1QFY26. This increase is primarily fueled by sharp price hikes in the South, followed by the East region. Other regions have also seen firm price gains on a QTD basis. Further, benign fuel prices continued to support cost efficiency and margin improvement. Cement demand has been soft due to labor-related issues in a few regions, unfavorable weather conditions, slower government spending, and a weak demand from the individual housing (IHB) segment. We estimate industry demand growth in low single digits (~3-4% YoY) in Apr’25. We believe sustaining the recent price hike is more critical, with demand likely to recover over the medium term as macro conditions improve.

South – focus on profitability drives sharp price hikes, up ~13% QTD in 1QFY26

* Cement prices experienced a sharp increase of INR35-40/bag (average) in Apr’25, rising ~12% MoM to an average trade price of INR358/bag. Prices rose across key markets, up ~17%/16%/10%/5% MoM in Tamil Nadu/Kerala/Andhra Pradesh/Karnataka in Apr’25.

* Following a sharp price increase in Apr’25, industry players have announced another hike of INR15-20/bag across markets from the second week of May’25, though sustainability needs to be monitored.

* After facing depressed margins through FY25, southern cement players are now shifting focus toward improving profitability. They are strategically balancing volume growth with margin improvement. Furthermore, following a wave of M&A activity during FY25, acquirers are expected to prioritize the integration of acquired assets, aligning them with the company’s standards, and operating them profitably.

* Earlier, the region witnessed a notable price increase of ~12%/13% YoY in FY15/ FY16, while demand growth moderated to ~5%/8% YoY. During this period, the southern players reported notable improvement in profitability.

East – prices remain stable MoM in May’25, up ~7% QTD in 1QFY26

* In the East region, the average cement price has been flat MoM in May’25, whereas it has risen ~7% QTD in 1QFY26. After two consecutive months of price hikes (Mar-Apr’25), the industry attempted another INR10/bag hike in May’25. However, this hike was not sustained and was rolled back within a few days.

* Demand in the East was healthy in Apr’25 but weakened in May’25 due to weak demand from the IHB segment. Further, infrastructure demand has remained subdued so far.

* The East continues to witness capacity expansion from various players in the next two years (estimated ~14mtpa grinding capacity addition in FY26/FY27 each). This could lead to higher competitive intensity and higher volatility in cement prices over the near to medium term.

West – price hikes announced in May’25, cement offtake strong in Apr’25

* In the West region, cement prices largely remained flat MoM in Apr’25, followed by a price hike of INR10/bag (~2%) announced in May’25. As a result, the average cement price has been up ~1% QTD in 1QFY26.

* The West saw strong cement volume offtake in Apr’25, supported by robust demand from government-led infrastructure projects (rail, road, and highways), an uptick in private/commercial projects activity, and sustained demand from the real estate and housing segment. However, demand has been muted in the initial days of May’25 amid unseasonal rain and labor unavailability.

* Currently, the West region is witnessing increased inter-regional movement at both key markets, Gujarat from the Rajasthan cluster and Maharashtra from the Nalgonda cluster (mainly through rake supplies). This also limits price increases in the region.

North & Central – prices flat MoM in May’25; up ~2% (each) QTD in 1QFY26

* The North and Central regions witnessed a price hike of up to INR5/bag (each) in Apr’25, led by the withdrawal of schemes/discounts given in Mar’24. After that, industry players announced price hikes; however, price hikes have not been sustained yet. As a result, the average cement price has been up ~2% QTD (in each region) in 1QFY26.

* The overall cement demand remained subdued, primarily due to weakness in the housing (IHB)sector and the sluggish pace of construction activity in both government and private sectors. However, dealers anticipate a potential uptick in demand in coming weeks, driven by pre-monsoon project completion and a likely increase in government spending.

* The North and Central regions are expected to witness ~14mtpa of grinding capacity addition each in FY26. We believe this incremental supply will keep pricing under control in the near term.

Lower fuel prices to aid cost optimization

* The average imported petcoke (US) price declined ~6% MoM to USD108/t in Apr’25. Moreover, spot imported petcoke (US) price declined by ~5% to USD99/t from exitApr’25. The average imported coal (South Africa) price declined ~2% MoM to USD89/t in Apr’25, while this remained range-bound in the past few months at USD90/t. At spot prices, the imported petcoke consumption cost stood at INR1.20/Kcal, and the imported coal consumption cost stood at USD1.36/Kcal.

* The petcoke price increased during Feb-Mar’25, which is estimated to increase fuel costsin 1QFY26. However, the recent decline in petcoke prices could help optimize fuel costs over the medium term. We continue to monitor fuel price trends closely for any signs of trend reversal.

* We estimate average cement spreads in Apr’25 for trade sales (cement price net of GST after subtracting variable cost) to be up INR180-190/t as compared to the 4QFY25 average.

Outlook and recommendation: Price recovery over volume push

* Our positive outlook on the cement sector is based on a) industry players’ focus on balancing volume growth and profitability, b) increasing consolidation, and c) favorable fuel prices.

* We prefer UTCEM in the large-cap space, while JKCE is our preferred pick in the mid-cap space. DALBHARA is our tactical pick given improving regional dynamics and its inexpensive valuation.

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