Cement manufacturers are set to enter an earnings upcycle in FY26, with analysts forecasting a revival in demand and improved margins driven by structural cost reductions. According to a report by brokerage firm UBS, key concerns such as weak demand, pricing pressures, and competition from the Adani Group have already played out, setting the stage for a recovery.
According to UBS analysts a combination of factors, including a housing upcycle, increased government capital expenditure (capex), and sector consolidation led by UltraTech and Ambuja, will contribute to stronger earnings for cement manufacturers.
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“In our view, all key cement demand drivers —housing (both rural and urban), infrastructure, and commercial projects — are aligned and should drive robust sector volume growth at a 7-8% CAGR, or 1.0-1.2 times real GDP growth, over the medium term,” the report stated.
Cement prices, which fell sharply by 8% in the first nine months of FY25, have likely hit their lowest levels, with potential for gradual improvement in the coming months. A report by JP Morgan noted that prices began rising in December, and there have been no significant rollbacks across any region. UBS analysts echoed this sentiment, suggesting that pricing should continue to strengthen through FY26 and FY27.
Beyond price improvements, cement firms are expected to benefit from structural cost reductions as they transition toward sustainable practices. UBS highlighted that initiatives such as renewable energy adoption, waste heat recovery systems, and alternative fuel usage will lead to cost savings, enhancing margins over the next two to three years. Additionally, logistical efficiencies, bolstered by higher railway penetration and increased electric vehicle (EV) and compressed natural gas (CNG) usage, will further reduce costs.
The brokerage firm anticipates an 8% volume growth in FY26, supported by continued housing demand, government infrastructure spending, and improving rural economic indicators.
Cement sales volume growth had slowed to 2% in H1FY25 following a 10% CAGR between FY22 and FY24. This decline was largely attributed to the general elections in May 2024 and unfavourable weather conditions, including heatwaves in early 2024 and heavy monsoon rains, which disrupted construction activities.
Sector consolidation is expected to persist despite UltraTech and Ambuja Cements having acquired five companies in the past three years.
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