Potential GST Rate Cut on Cement Sector: Key Positive by Choice Institutional Equities
Event: In the Independence address to the nation on Aug 15, 2025, our honorable PM Shri Narendra Modi announced a potential rationalisation (reduction) of GST rates during Diwali 2025. A couple of hours later, a Ministry of Finance press release envisaged the idea of a simplified GST regime with 2 slabs – standard and merit, while there would be special rates only on a few demerit goods. Apart from simplification, the objective of the rationalisation exercise is also to boost affordability and consumption.
GST rate on Cement has, ever since the introduction of the GST regime, been held at 28%, while other construction inputs – like metals, tiles, etc carry a rate of 18%. While it is still not certain, there is a potential possibility that Cement may be moved to the 18% bracket.
Impact: In such an event, we see three impacts on the sector: 1) Increased consumption, which would gradually also improve capacity utilization, 2) Pricing power to improve for the sector, and 3) Operating leverage benefit for the companies at varying degrees due to higher volumes. We estimate cement industry demand for FY27/28E to spike from a 6-8% range to ~8-10% range on an 18% GST rate. At the same time, we also expect a pricing tailwind of ~INR60/100 per ton each in FY27/28E.
Key Beneficiaries: Consequently, we expect EBITDA/t for the Cement companies under our coverage to increase in the range of 15-25% in FY27/28E. In % terms, the biggest 4 beneficiaries could be ACC, BCORP, JKLC, and NUVOCO.
We continue to maintain our positive stance on the sector with our Top Picks being NUVOCO and JKLC. We have Buy/ADD/SELL ratings on 8/1/2 companies respectively.
GST rate @ 28%
* Costly cement.
* Higher input burden on infra and housing impacts the industry volume growth. This has been a long pending issue that has been an overhang on demand growth in our view.
If GST rate cut to @ 18%
* Cement prices will be lower by 10% for the end consumers of Cement (Loss to ex-chequer is lower as institutions claim ITC).
* 10% lower cement prices could re rate demand for Cement by at least ~300-400 bps pa in our view.
Cement Industry Demand Growth in FY27/28E could grow by ~8-10% vs. earlier expectations of 6–8% growth
A 10% cut in GST will lower the cost burden on end consumers of cement, assuming the GST rate cut is immediately passed on to consumers. Affordable cement is set to fuel demand for housing and infrastructure, aligning with the government’s Housing for All, Smart Cities, and infrastructure vision. This structural boost is expected to accelerate cement demand, with volume growth rising from 8–9% earlier to ~8-10% pa, unlocking a strong growth runway for cement companies across the board, which will result in higher volume as we show in the exhibit below.
With higher demand, realisation too is expected to improve gradually
Cement, being an essential commodity for housing and infrastructure, has historically exhibited low pricing elasticity. A meaningful GST reduction now acts as a catalyst, improving consumer sentiment and driving affordability in the sector. This positive shift supports volume growth, increases capacity utilisation for the sector and gradually takes cement prices higher. We conservatively forecast a realization tailwind of 1.0%/1.9% in FY27/28E for companies, as we show in exhibit below.
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