With the cement industry expected to witness a demand bounce back and make a firm recovery in the upcoming fiscal year, UBS has turned optimistic on the sector. The brokerage firm is positive on the sector, on the back of structural cost savings, price stabilization after an 8 per cent decline in 9MFY25, and sector consolidation led by UltraTech Cement and Ambuja Cement. UBS upgraded Dalmia from Sell to Buy, given its attractive valuation and the sector’s demand and margin tailwinds. “We are not modelling the company’s aggressive guidance on capacity or volume growth and expect Dalmia to outperform the industry only marginally on volume growth,” it said. UltraTech Cement and Ambuja Cement were also upgraded to a Buy call. ACC too retained its Buy rating.
According to an analysis report by UBS, all key cement demand drivers – housing (rural and urban), infrastructure and commercial – are in place and should drive robust sector volume growth – at 7-8 per cent CAGR or 1.0-1.2x real GDP growth – over the medium term.
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Consolidation in cement industry
The cement industry is undergoing a consolidation, which, according to a report by Crisil Ratings, will accrue three significant benefits to the acquirers over the medium term: wider geographical reach, access to crucial limestone reserves and economies of scale. These benefits, it added, will more than offset a marginal increase in the financial leverage of the acquirers and thus support an improvement in their credit profiles over the medium term.
The consolidation began in fiscal 2024, with 51 MT of capacity acquired to date and an additional 14 MT worth of buyouts announced, which are likely to be completed by the first half of fiscal 2026. While the cement industry, as the Crisil report stated, has a record of buying capacities in quick succession, the current phase, with about 11 per cent of the installed capacity changing hands, is the highest ever in a block of two years.
Manish Gupta, Senior Director and Deputy Chief Ratings Officer, Crisil Ratings, “The recent spate of acquisitions is providing the acquirers an opportunity to scale up quickly and strengthen their market position, as well as access to captive limestone mines more economically.
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