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Elevated input costs (Rs300-400/t) have been the industry’s pain-point for the past 6-7M – full impact of this is likely to be seen in 2Q earnings, with high probability of staying sticky in 2HFY27 too. While the industry took price hikes of Rs10-15/bag early in 1Q, they were insufficient to offset the cost impact with the monsoon price dip amplifying the gap. The Sep-26 price-hike attempt was successful (albeit largely in non-trade); however, street will appreciate another Rs10/bag hike, we believe. Given the onset of a busy season, favorable demand supply scenario, and basis our channel checks, there is high probability of a Rs10- 15/bag price hike from 12-Oct. Further, despite reducing our valuation targets (with earnings broadly intact), we still find attractive entry points across the cement coverage. Consequently, we upgrade JSW Cement (to BUY from Reduce) and The Ramco Cements (to ADD from Sell). Our top-picks are UTCEM in large caps, along with JSW Cement and DALBHARA in mid-caps. We also see Shree and Ambuja Cements as tactical Buys. Key risks: negligible price hikes or sharp cost escalation.

Demand steady in 1HFY27; should be strong for next 18 months Industry volume offtake has been steady and is likely to see 7-8% yoy growth in 1HFY27, primarily driven by the non-trade segment. Further, we expect demand intensity to be robust for coming 18M, viz 6M of busy construction season (2HFY27), followed by 12M (FY28) of high demand owing to the general elections in 1HCY29 (demand growth has been strong in the year preceding the election year, in the last two general elections). Overall, we continue to see demand CAGR at ~7% over FY26-28E.

Improvement in clinker utilization rates…

Per our industry demand-supply analysis, we see cement/clinker capacity addition CAGR at ~7%/5%, respectively, over FY26-28E. There has been an industry-wide change (delay or drop) in the expansion program due to low margin and volatile macro-conditions. This, however, has improved the demand-supply situation, with demand outpacing supply in the short-to-mid-term. Accordingly, we expect pan-India clinker utilizations to increase to ~79% in FY28E vs 76% in FY26, while cement utilizations are likely to be flat at ~66%.

…is already visible in the pricing uptick…

The cement industry saw a pan-India price improvement of Rs10-15/bag (depending on the region) in Apr/May-26. Consequently, Jul/Aug-26 saw partial rollback in these prices owing to monsoon-related weakness, but Sep-26 saw a successful price recovery of Rs5- 7/bag (while that in non-trade was higher at Rs10-20/bag). This restricted the qoq fall to a mere ~1% (Rs2-4/bag) in 2QFY27. Also, based on our channel checks, there is high probability of further price rise of Rs10/bag wef 12-Oct-26 (viz onset of Navratri).

…which should offset the cost inflation

Rising fuel costs have been a pain-point for the sector since 6-7M, with brief relief in Jul26. Major fuel sources, including petcoke and imported coal, were largely stable in 2QFY27; but spot prices have since risen by ~20%/~16% (vs the 2Q average) to ~$175/t and $150/t, respectively. Similarly, price of PP granules has resurged to >Rs135/kg levels, post a dip in Jul-26. Overall, we expect flat operating costs qoq in 3QFY27 as well (operating leverage benefits can be accrued), given the standard fuel inventory levels of 1.5-2 months. To offset the cost inflation (Rs300-400/t), the industry will need another ~Rs10/bag (~3%) of sustained price hikes; hence, Oct price-hikes are crucial.

Valuation and outlook

Earnings in 2QFY27 should see sequential decline of Rs200-250/t due to the dual impact of higher fuel cost and negative operating leverage. However, the recent sharp corrections have mostly factored in this weakness, in our view – eg UTCEM is trading at ~14x 1YF EV/EBITDA, viz akin to the trough seen during the Russia-Ukraine war. Further, the Emkay cement universe is currently trading below its 5Y -1SD 1YF EV/EBITDA. We believe the street has not considered the upcoming pricing activity or the operating leverage benefits set to accrue in 2HFY27; hence we see current valuations as attractive, as cement stocks offer average upside of 10-35%, despite our reduced valuation multiples (earnings are broadly maintained).

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