Cement sector faces margin pressure despite healthy demand growth

While cement demand remains resilient and volumes are growing, rising input costs, capacity additions and geopolitical risks could weigh on profitability

Q4FY26 was a strong quarter for the cement industry in terms of volume growth and price hikes. However, rising costs are expected to keep margins under pressure, while ongoing capacity expansions are likely to sustain competitive intensity.

 

The aggregate earnings before interest, taxes, depreciation and amortisation (Ebitda) of companies accounting for around 75 per cent of industry capacity rose 6 per cent year-on-year (Y-o-Y) and 37 per cent quarter-on-quarter (Q-o-Q) in Q4FY26. However, blended Ebitda per tonne declined 2 per cent Y-o-Y, even as it improved sequentially, reflecting a rebound from the seasonal weakness seen in Q3FY26.

 

Cement volumes grew 8 per cent Y-o-Y in Q4FY26, supported by housing and infrastructure demand. Industry capacity crossed 700 million tonnes per annum (MTPA) in FY26, up 6.8 per cent Y-o-Y.

 

JK Cement led volume growth with a 13.9 per cent Y-o-Y increase, followed by Shree Cement (up 9.5 per cent) and Ambuja Cements (up 9.3 per cent).

 

UltraTech Cement reported healthy growth of 9 per cent on a high base, while ACC and Nuvoco Vistas recorded growth of 7.2 per cent and 5.3 per cent, respectively. Dalmia Bharat and The Ramco Cements posted lower growth of 2.3 per cent and 2.1 per cent, respectively.

 

Realisations rose by an estimated 2.5 per cent both Q-o-Q and Y-o-Y, with average increases in net sales realisation (NSR) of ₹137 per tonne Y-o-Y following price hikes in January and February. Average Ebitda per tonne declined by ₹81 Y-o-Y but increased by ₹110 Q-o-Q due to seasonal factors.

 

Several companies outperformed on profitability. UltraTech Cement reported an 11.3 per cent Y-o-Y increase in Ebitda per tonne to ₹1,253, the highest in the industry. Dalmia Bharat recorded an 11 per cent increase to ₹1,025.

 

However, Shree Cement reported a 16 per cent Y-o-Y decline in Ebitda per tonne to ₹1,179. Ambuja Cements and ACC saw sharp contractions of 28.3 per cent and 28.2 per cent, respectively. JK Cement’s Ebitda per tonne declined 20.1 per cent Y-o-Y due to volume losses in its UAE operations. Ramco Cements reported a 13.8 per cent Y-o-Y improvement from a low base to ₹692 per tonne.

 

Companies indicated price hikes of ₹15-20 per bag in the trade segment and ₹20-25 per bag in the non-trade segment during Q1FY27 to offset sharp cost inflation arising from the conflict in West Asia. Managements said demand remains constructive, but the conflict has raised costs and disrupted construction activity in the region.

 

Most companies are targeting volume growth of around 8 per cent in FY27. Ambuja Cements has adopted a more cautious stance, projecting 5 per cent growth due to concerns over demand moderation. Capacity utilisation across the industry remains broadly in the 60-70 per cent range.

 

The ongoing Q1FY27 quarter has been challenging, with higher costs for fuel, packaging and transportation. However, companies remain optimistic that April price increases can be sustained to offset inflationary pressures. Premiumisation remains another strategic focus area, with white cement and wall putty segments also witnessing price increases.

 

Packaging costs have risen by ₹80-100 per tonne. Increases in pet coke and coal prices are expected to add ₹150-200 per tonne to cement production costs. Rupee depreciation has also had a negative impact, with UltraTech alone citing a hit of more than ₹120 crore. Higher diesel prices are adding to logistics costs.

 

Companies are increasing the share of green energy in their operations and exploring alternative fuels and raw materials such as fly ash and blended cement to generate structural cost savings. However, while cost optimisation measures may yield benefits over time, near-term inflation could exceed ₹350 per tonne.

 

All major cement producers are continuing with capital expenditure plans, although some may slow investments and defer capacity additions under current market conditions. Most companies maintain strong balance sheets, enabling them to pursue expansion without significant financial stress.

 

Combined industry capacity additions are expected to add around 130 million tonnes by FY29, with approximately 41 million tonnes commissioned in FY26 alone. Given the existing surplus capacity, there is a risk of pricing pressure if demand growth falls short of expectations.

 

Most companies hold fuel inventories sufficient for 60-90 days, helping them manage cost pressures during Q1. However, demand in Q2 is typically weaker due to the monsoon season, which could lead to a sharp deterioration in margins. Companies have also highlighted construction slowdowns caused by labour shortages and heatwave conditions.

 

Seasonal pressures in Q1 and Q2 could be more pronounced if El Niño conditions emerge. However, the conflict in West Asia remains a bigger concern. It has significantly increased fuel, coal, pet coke and packaging costs, with the risk of further escalation if tensions persist.

 

Secondary effects could also weaken demand growth. Investors should remain prepared for such scenarios.