Motilal Oswal sector of the week: Cement; check top stock picks, targets

India’s cement sector is entering a phase of steady recovery and is estimated to grow in mid-single digits on a Y-o-Y basis supported by improving demand prospects, favourable cost dynamics, and healthy capacity additions. Demand has been slow so far in Octocber 2025 due to slow construction work amid the festive season and due to the labour shortage and state/local municipal elections in a few markets. Dealers expect a meaningful pickup in demand from mid-November 2025, with the return of labour workforce and the beginning of a peak construction period. 

 

The all-India average cement price (WSP-net of GST) declined 1.3 per cent Q-o-Q in Q2FY26 due to price corrections in south, east and west regions, while prices in north and central regions remained stable. The average cement price (WSP-net of GST) in Oct’25 so far has declined by 0.6 per cent vs. the Sep’25-end level, mainly due to a price decline in South and East regions, while prices remain steady in other regions. Most dealers suggested that there would be no price hikes in the near term and that cement players may look for price changes, if any, from Jan’26 onward considering the demand trend.

 

The all-India average cement spread for trade sales (cement price net of GST after subtracting variable cost) to be largely stable (so far) given the resilient pricing and favourable fuel mix can be anticipated. However, profitability in the near term is estimated to decline sequentially due to negative operating leverage.

 

In the cement sector, near-term weakness persists due to subdued demand, muted pricing trends and high petcoke prices. The sector is poised for sustained momentum, supported by strong earnings growth in FY26E and FY27E, with aggregate Ebitda across major players likely to rise sharply on a low base. Increased industry consolidation, along with easing cost pressures amid favourable coal prices, is strengthening operating leverage. Furthermore, a growing shift toward green power and AFR, coupled with ongoing investments in efficiency enhancement and logistics optimization, continues to drive structural improvement in profitability and competitiveness across the sector.

UltraTech Cement – TP: ₹14,460

UltraTech Cement is well-positioned for sustained growth over the medium to long term, driven by strong demand across rural and urban markets, steady infrastructure activity, and private capex expansion. The ongoing brand transition of India Cements and Kesoram is progressing smoothly, enhancing premium product penetration and supporting blended cement growth. Phase IV expansion, adding 22.8mtpa capacity in the northern and western regions, will further strengthen clinker capacity and improve the clinker conversion ratio, reinforcing efficiency and cost competitiveness. The company’s focus on optimizing operations, expanding high-margin blended cement, and leveraging favourable pricing and GST benefits enhances revenue quality and margin sustainability. With a strong market share trajectory from 28 per cent toward 32–33 per cent, consistent volume growth, and disciplined capex execution, UltraTech Cement is positioned to deliver robust earnings growth, healthy return ratios, and steady cash generation, underpinning a compelling long-term investment case.

Dalmia Bharat – TP: ₹2,660

Dalmia Bharat is well-positioned for sustained growth, underpinned by its disciplined cost management, strategic capacity expansions, and increasing share of blended and green cement. The ongoing projects at Belgaum and Kadapa will enhance production capabilities and support higher volumes over the coming years. Strong pricing power, coupled with efficient utilisation of alternative fuels and renewable energy, helps maintain healthy margins despite potential raw material cost pressures. It’s steady market presence, improving brand positioning, and disciplined execution of capex provide a solid foundation for consistent revenue growth, margin expansion, and robust cash generation. With an attractive valuation and an expanding EBITDA per ton profile, Dalmia Bharat offers a compelling long-term investment opportunity, driven by structural demand growth and operational efficiency.  (Disclaimer: This article is by Motilal Oswal Financial Services Research desk. Views expressed are their own.)