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Q2FY26 Cement Review – Volume Growth Better Than Expected; Outlook Remains Positive

* Financial Performance

* Companies under our coverage delivered YoY growth of 16% in volume, 22% in revenue, 60% in EBITDA, and 195% in PAT, beating our expectations. This compares to forecasted growth of 8% in volume, 13% in revenue, 47% in EBITDA, and 68% in PAT.

* EBITDA/tonne during the quarter improved notably. EBITDA margins expanded by 400 bps YoY, supported by higher volumes and realisation, which grew by 16% and 4.5% respectively. Sequentially, margins were lower by 310 bps as Q2 is largely impacted by seasonality. EBITDA per tonne rose to Rs 930, marking a 50% YoY increase but a 15% decline QOQ.

* Blended Realization per tonne improved by 4.5%/1% QoQ to Rs 5,472, as most regions experienced stability in cement prices except South and East. Cost per tonne was Rs 4,545, showing a 1.5% decline YoY but higher QoQ owing to negative operating leverage and higher power and fuel costs up 18% to Rs 1,185 per tonne as Pet Coke prices remained elevated. On a YoY basis, P/F cost was flattish.

* Performance across the coverage universe was largely in line with expectations. Notable outperformance came from Ambuja Cement, Dalmia Bharat, ACC Ltd, JK Lakshmi, Birla Corp, and Star Cement, while JK Cement’s performance remained mixed, and Shree Cement underperformed compared to estimates. UltraTech delivered healthy volume growth during the quarter.

* During the quarter, Ambuja Cement and JK Lakshmi commissioned 4 mtpa and 1.35 mtpa Cement Grinding Units, respectively. Ambuja Cement and UltraTech announced additional capacity expansion of 22 mtpa and 15 mtpa to be commissioned over FY26-FY28. Previously announced capacity additions are on track and are expected to be commissioned within the given timelines.

* The management noted that cement prices have remained largely flattish since Q2FY26 exit levels, with some softening observed in the South and East regions. Demand is expected to strengthen in H2FY26, supported by rising government infrastructure spending and a recovery in housing, industrial, and commercial segments. The recent reduction in GST rates acts as a structural tailwind, with benefits likely to accrue over the medium to long term.

Volume & Realization improved YoY with Cost Under Control

In Q2FY26, cement volume for our coverage universe grew by 16%, beating our expectations. Realisations improved by 4.5% as cement prices remained higher YoY, while operating costs were flattish YoY. We anticipate operating performance to remain benign in FY26, supported by improved pricing, higher government spending on infrastructure projects, and housing demand. The recent GST cut on Cement is also expected to improve demand in the medium to long term.

Cement Demand better than Expectations:

* Resilient Pricing: Cement prices improved by 4.5% YoY and 1% QoQ for our coverage universe, with most of the regions witnessing stable prices except the South and East regions, where prices softened. Currently, Trade prices are largely at the same level with minor cuts as Q2FY26 exit prices, while Non-trade prices are lower, followed by the recent GST cut on Cement. Market dynamics and the demand-supply scenario will dictate the pricing environment.

* Volume-led Growth: Demand for cement remained resilient, also on account of a lower base last year, driven by government infrastructure spending and a revival in housing and commercial construction. UltraTech Cement, Ambuja Cement, JK Cement, JK Lakshmi, and Star Cement witnessed high double-digit volume growth during the quarter.

* There were regional variations in demand. While the South and East regions saw strong demand supported by infrastructure activity, preelection spending in Bihar, the North and Central regions witnessed softness owing to a slowdown in infrastructure-related spending, while the Western region remained stable.

Input Cost

* During the quarter, power and fuel costs remained flat YoY to Rs 1,186/tonne for our coverage universe, though on a QoQ basis, costs were higher by 18% on a tonne basis as international Pet Coke prices remained elevated at $118-$120 tonne. While freight costs were lower owing to seasonal discounts offered by Railways and raw material costs remained rangebound. Other costs were higher on a tonne basis due to negative operating leverage caused by seasonality.

Outlook

* We expect cement demand to remain strong in FY26, supported by sustained government infrastructure spending, steady housing demand, and a recovery in rural consumption. These positive drivers are likely to keep the industry on a solid growth trajectory, and we forecast high single-digit volume growth across our coverage universe. The industry added nearly 30–35 MTPA of new capacity in FY25, with a further ~35-40 MTPA expected in FY26. This sustained capacity expansion reflects confidence in long-term demand growth and continued investment momentum across the sector.

* The GST rate cut on cement (from 28 % → 18 % announced) is a structural tailwind: It should stimulate demand (especially in rural and semi-urban housing) and thus help volumes over the medium term. Leading players with premiumization, strong distribution, diversified geography, and efficiency will fare better than those with a weak regional presence or a high cost base.

* We remain positive as long-term demand drivers are intact and expect cement demand to grow at a CAGR of 7%-8% over FY24-27E. Sector consolidation is expected to benefit large players through economies of scale, supply chain efficiency, and better pricing in the long term. Cement prices, regional demand and supply dynamics, and trends in fuel costs will be key monitorables.

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