Top Conviction Ideas - Cement by Axis Securities Ltd
Q1FY26 Cement Review – Higher Prices Boost Profitability; Outlook Remains Positive
In Q1FY26, companies under our coverage posted strong financial performance, with YoY growth of 10% in volumes, 16% in revenue, 40% in EBITDA, and 45% in PAT, all exceeding our expectations. EBITDA margins expanded sharply by 350 bps YoY, supported by higher realisations (+4% YoY) and volumes (+10% YoY), resulting in EBITDA/tonne of Rs 1,070, a 30% YoY increase. Blended realisation per tonne improved to Rs 5,510, while cost per tonne declined 1% YoY to Rs 4,441, aided by a 7% drop in power and fuel costs.
Performance was broad-based, with notable outperformance from JK Cement, JK Lakshmi, Ambuja Cement, and UltraTech Cement, while Dalmia Bharat and Shree Cement delivered stronger margins. ACC and Birla Corporation had mixed showings. Capacity expansion momentum continued, with UltraTech, Shree, and Ambuja commissioning a combined 14.5 mtpa in Q1, and Dalmia Bharat announcing a further 6 mtpa expansion. Management commentary indicates cement prices have been largely stable since Q1 exit levels, with demand expected to strengthen through FY26, driven by government infrastructure push and a recovery in housing, industrial, and commercial demand.
Outlook – Growth Momentum Intact
Input costs remain supportive, with power and fuel costs down 7% YoY to Rs 1,010/tonne, partially offsetting marginal increases in raw material costs. We expect cement demand to remain strong in FY26, supported by infrastructure spending, steady housing demand, and rural consumption recovery. The sector is expected to see high single-digit volume growth, with ~40 mtpa of new capacity additions in FY26 following 30–35 mtpa in FY25, reflecting confidence in long-term demand.
Our forecast calls for 7–8% CAGR demand growth over FY24–27E, with sector consolidation enhancing economies of scale, supply chain efficiencies, and pricing discipline for large players. We see long-term demand growth outpacing supply despite ongoing capacity additions. Key factors to watch include cement price trends, regional demand-supply balances, and movements in fuel costs.
Key Monitorables
We will track higher price realisations, trends in input costs, and the pace of demand pick-up, especially in the run-up to the festive season and busy construction activity in H2FY26. The stability of power and fuel costs, coupled with the sustainability of current pricing, will be critical to margin resilience.
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