Construction Materials : Cement prices tracking seasonal softness by Kotak Institutional Equities
Cement prices tracking seasonal softness
Our channel checks suggest pan-India cement prices have softened marginally (0-1% mom) in August 2025 similar to June-July 2025. The drift is in line with historic seasonal trends and shows resilience after a strong 1QFY26. Cement demand saw a 3.5-4% yoy growth in 1QFY26, as per our tracking universe, which is lower than DIPP data’s 8.4% yoy. Margins improved sharply in 1QFY26, but we believe they have peaked. Back-ended capacity additions in FY2026E should bring prices/margins under pressure in 2HFY26E. Remain cautious on the sector due to demanding valuations.
Cement prices easing with seasonality in 2QFY26
Our channel checks suggest that all-India average prices remain under pressure in 2QFY26E, though the quantum of decline ((-)1.2% qoq) has been limited thus far. Prices ex-south are largely stable over the past two months, whereas south prices have declined 2.7% qoq in 2QFY26E, partially reversing 1QFY26 gains.
Tepid demand growth in 1QFY26
Early monsoon impacted demand in May-June 2025. Volumes for our coverage universe grew 4.2% yoy, partially distorted by contribution from inorganic growth in ACEM and UTCEM. Our tracking universe’s (85% of industry) volumes grew 3.6% yoy, which is a better presentation of industry growth, whereas DIPP data reflects 8.4% yoy growth in 1QFY26. Dealer feedback suggests low-mid single-digit demand growth across regions in the trade segment in July-August 2025. We estimate a 6% demand growth in FY2026E, factoring in a stronger 2HFY26E.
Strong margins in 1QFY26 came at the cost of market share of a few
In 1QFY26, our coverage saw higher realizations (+4.6% qoq) due to price hikes, more than offset by higher costs (+4.1% qoq). Margins expanded to multi-quarter highs of ~Rs1,200/ton (+36% yoy, +6.4% qoq). Leaders such as UTCEM, SHREE and DALMIA lost market share in 1QFY26, which helped elevate prices/margins. We estimate a ~50 mtpa (+7.7% yoy) capacity addition in FY2026E, majorly in five companies. Capacity addition is back-ended—~40 mtpa starting in 2HFY26E, which should bring the focus back on market share. The leader’s strategic recalibration should intensify the market share battle in 2HFY26E and exert pressure on prices/margins. We believe margins have peaked in 1QFY26 and estimate EBITDA at Rs1,100/ton in FY2026E versus Rs1,200/ton in 1QFY26 for our coverage.
Punchy valuations limit upside
A potential GST rate cut for cement to 18% (from 28%) has led to a speculative rally in cement stocks on the expectation of higher demand/prices. We find it misplaced since cement demand is inelastic to prices, as it forms only <5% of construction costs. Cement prices are led by market competition, which would remain unchanged by lower GST. We believe that the valuations of most companies in our coverage universe are demanding. Strong supply addition over FY2026-28E should keep sector utilization and margins rangebound. UTCEM and DALBHARA are better placed than peers. TRCL and SRCM remain our top SELLs.
Above views are of the author and not of the website kindly read disclaimer
