Cement demand strong; correction offers buying opportunity: Motilal Oswal

Among stock preferences, UltraTech Cement remains its top pick in the large-cap segment for Motilal Oswal, while it maintains a positive view on JK Cement and Dalmia Bharat in the mid-cap space

Cement demand has remained strong, supported by sustained infrastructure spending, healthy government capital expenditure, and steady traction in housing and urban development, according to Motilal Oswal Financial Services. The brokerage said the recent correction in cement stocks presents a favourable entry point to accumulate fundamentally strong companies.

 

Robust demand across most regions is driving volume growth, although a recent spike in fuel prices poses a potential cost risk to financial year 2027 (FY27) earnings if not passed on through price hikes.

 

Motilal Oswal said it is not changing its earnings estimates and believes pricing actions by cement companies will be key to offsetting higher fuel and packaging costs. The brokerage estimates that the industry may require a price increase of around ₹10–15 per bag, net of Goods and Services Tax (GST), to absorb the impact of elevated spot fuel and packaging costs.

 

 

Among stock preferences, UltraTech Cement remains its top pick in the large-cap segment, while it maintains a positive view on JK Cement and Dalmia Bharat in the mid-cap space.

 

The brokerage also flagged supply chain risks amid ongoing West Asia tensions, noting that Indian cement manufacturers rely heavily on imported gypsum. Higher Brent crude oil prices could lead to a rise in imported fuel costs, including coal and petcoke, potentially increasing fuel costs by around ₹160-200 per tonne in the first quarter of FY27.

 

It added that crude oil trends typically act as a leading indicator for cement companies' fuel costs. Petcoke and coal together account for nearly 85-90 per cent of the fuel mix, and any sharp increase in their prices can significantly raise production costs. However, the financial impact is usually seen with a lag, as companies maintain fuel inventory for about two to three months.

 

Based on its sensitivity analysis, Motilal Oswal said that, assuming all other variables remain constant, current spot fuel prices imply a potential downside risk of around 15 per cent to its FY27 Ebitda estimates for the coverage universe.

 

The brokerage noted that Ebitda remains highly sensitive to fuel price movements, with every additional $10 per tonne increase in fuel costs beyond current spot levels potentially leading to a further 8 per cent decline in earnings. In addition to fuel, packaging cost inflation is also a key risk, with a sustained rise likely to impact earnings by around 6 per cent.

 

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