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Steady prices amid sequential volume dip

We expect our cement coverage universe to report YoY Revenue/EBITDA/PAT growth of ~11%/43%/51% (-5%/-2%/-14% QoQ) in Q1FY26 on improved pricing despite muted volume growth. Cement pricing was strong in the first 2 months of the quarter, supported by government infrastructure spending, which aided demand to some extent. However, overall demand remained mixed across regions, mainly due to extreme heatwaves affecting labor availability and early monsoon affecting construction activities in some regions. Marriage and harvesting seasons in April and May also affected demand. As the monsoon sets in across regions, pricing momentum began to fade. Despite mixed demand, southern markets saw the steepest price hike during the quarter, followed by the eastern region, which resulted in a QoQ average price increase of ~4%.

During the peak monsoon ahead, we expect the IHB segment to provide some support led by interior work and pricing to remain subdued. Cement companies under our coverage are likely to post a strong operating performance in Q1FY26, led by better pricing and flattish operating costs. Southern and eastern-focused players are expected to see a strong QoQ rise in EBITDA/t, driven by the steepest price hikes in these regions. Key monitorables to watch out are: 1) near-term demand growth, 2) sustainability of prices, and 3) trend in petcoke and other costs.

Recovery in cement realization: Realization for our cement coverage universe is expected to increase by ~3% QoQ (3% YoY) in Q1FY26. Cement players across regions attempted price hikes in phases wherever possible, supported by strong government infrastructure spending in the first half of the quarter. According to our channel checks, cement prices increased on average by Rs12/bag QoQ, led by a steep rise of Rs40/bag in the south and Rs25/bag in the east, followed by a Rs7/bag increase in the north. In contrast, pricing in the west and central regions declined by Rs4/bag and Rs10/bag, respectively. Going forward, we expect prices to remain muted with downward pressure during monsoon, which might put pressure on Q2FY26 EBITDA/t.

Weak volume growth despite low base: We expect cement sector companies to witness weak YoY volume growth in Q1FY26 led by incremental volumes from acquisitions by industry leaders. Despite government’s continued push on infrastructure spending over the last few months, cement demand is not picking up further impacted by extreme heatwaves and early monsoon in central, northern, southern and western India. We expect our coverage universe to report 8% YoY volume growth mainly witnessed by inorganic growth of leaders to 85mt (-8% QoQ).

Profitability to improve YoY: Power and fuel costs are expected to remain soft in Q1FY26, as petcoke prices declined by ~10% over the last 2 months after inching up by 5% in Apr’25. Freight costs are also expected to decline as major companies continue working on reducing their lead distances. Other costs are likely to benefit from better operating leverage on account of higher YoY volumes. In the long term, costs are expected to trend lower, supported by stable diesel prices, an increasing share of renewable energy power, and expansion of railway sidings. Average EBITDA/t for our coverage universe is expected to grow ~6% QoQ (by Rs66) to ~Rs1,105 (+Rs270 YoY). DALBHARA and ACC are expected to witness the maximum increases of Rs189/t and Rs106/t (blended), respectively, led by higher exposure to southern region.

Change in rating and estimates

UltraTech Cement: We downgrade the stock to ACCUMULATE from BUY as the stock has witnessed ~11% run-up in the past month, narrowing the upside to our target price of Rs13,668 (assigning 18x EV to Mar’27 EBITDA). We have factored in most of the benefits from incremental volumes of Kesoram and India Cements over the next 2 years and have limited scope to upgrade EBITDA/t unless prices support. At CMP, the stock trades at EV of 19.9x/16.3x of FY26/27E EBITDA.

ACC: We expect ACC to be a key beneficiary of higher prices in South/East regions in 1HFY26. Incorporating recent price increases and AR25, we upgrade our EBITDA estimates by 8% each for FY26/27E. Maintain BUY with revised TP of Rs2,602 (Rs2,383 earlier) valuing at an EV multiple of 12x Mar’27E EBITDA. At CMP, the stock trades at EV of 9.3x/8.4x of FY26/27E EBITDA.

Nuvoco Vistas: We raise FY26/27E EBITDA by 9%/1%, incorporating higher prices for FY26/27E. Maintain ACCUMULATE with revised TP of Rs381 (Rs374 earlier) valuing at an EV multiple of 9x Mar’27E EBITDA. At CMP, the stock trades at EV of 9.8x/8.6x of FY26/27E EBITDA.

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