Cement Sector Update: Weak prices offset leverage gains; all eyes on Jan hikes by Emkay Global Financial Services Ltd
We expect the average EBITDA of our cement universe to increase ~30%/5% YoY/QoQ. Per our latest channel-checks report “Strong December demand paves way for January price hikes”, we see the industry logging 6-7% YoY volume growth in Q3FY26E, while our coverage stocks are estimated to report ~9% (LFL) YoY growth. Weak non-trade prices during Q3 will erase the operating leverage gains and consequently result in unit EBITDA falling ~3% QoQ (up ~12% YoY) for our coverage companies. We expect Star Cement and Shree Cement to maintain their sector-high profitability streak, at Rs1,400/t and Rs1,135/t, respectively. Further, players like UTCEM, ACEM, and JKCE are expected to report >Rs900/t (implying marginal QoQ gains). Our outlook: The recent corrections in cement stocks have turned the risk-reward ratio favorable (Exhibit 20). We believe the street has broadly factored in the Q3 pricing weakness and, hence, the benign profitability. Further, with demand momentum improving and a likely cement price-hike in Jan-26, we see an opportunity to own large-cap cement stocks. We maintain our top picks – UTCEM, SRCM, and JKCE; we also like STRCEM.
Our cement universe volume to increase ~9% (LFL) YoY
Post a lackluster 1HFY26, demand found feet in the last ~50 days of Q3FY26 which resulted in overall industry growth of 6-7% YoY in Q3. We estimate our coverage stocks to clock ~15% YoY volume growth in Q3FY26E. However, excluding volumes from acquired entities UTCEM and ACEM, we expect growth at ~9%. Given that North and Central India saw better demand buoyancy than the South and East India markets, we believe JKCE, UTCEM, and ACEM would outperform TRCL, Damia, and JSWCEM, on the volume growth (YoY) front.
Correction in realization shall erase…
In Q3, weak trade demand resulted in a steep correction in non-trade prices, particularly in South and East India. Non-trade prices (ex GST reduction) corrected by Rs25-30/bag (8- 9%) in South and East India, while North and West India have restricted the fall to Rs15- 20/bag (5-6%). Hence, we believe sector players with exposure in North and Central India (ie SRCM, JKCE) would report a lower QoQ realization dip as against companies with exposure in South and East India (ie TRCL, Dalmia). We believe blended realization of our overall cement coverage is likely to decline ~3% QoQ (Rs150/t).
…the operating leverage gains
Total unit cost of our cement universe is expected to be flat YoY, albeit decline ~3% (Rs125/t) on QoQ basis. Majority of the sequential cost savings are led by operating leverage gains and reversal of maintenance costs incurred during Q2FY26 (kiln shutdown). Accordingly, we observe the unit fixed cost declining by ~Rs140/t QoQ. Given that pet coke prices have inflated by ~USD10/t over the past 3M, fuel cost may increase by Rs40-50/t. Further, higher coal usage (for players like UTCEM, ACEM) is likely to be offset by higher petcoke prices through benefits arising from the coal consumption cess waiver (estimated at Rs30-40/t)
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