Cement prices to remain weak in coming qtrs despite demand: Elara Capital

Elara Capital cautions that the near-term pricing environment remains weak, with operating leverage and higher costs likely to weigh on profitability in Q2FY26 and potentially spill over into Q3FY26.

Cement demand in India is expected to rebound in the coming quarters as monsoon activity recedes and uncertainty over the Goods and Services Tax (GST) cut eases, according to a sector update by Elara Capital.

 

However, the brokerage cautions that “the near-term pricing environment remains weak, with operating leverage and higher costs likely to weigh on profitability in Q2FY26 and potentially spill over into Q3FY26.”

 

Near-term margin peak may be behind us

 

Analysts noted that cement companies may already have seen their near-term margin peak. Prices softened during the monsoon months and were further impacted by destocking ahead of the GST cut, which reduced the tax rate on cement from 28 per cent to 18 per cent effective September 22. “The full benefit of this tax reduction has been passed on to consumers, leading to a decline in retail prices across regions,” Elara Capital said.

 

 

Consequently, the all-India average retail price (gross of GST) fell ₹29 month-on-month to ₹340 per 50 kg bag in September. On a GST-adjusted basis, prices remained stable at ₹369 per bag. Regionally, prices fell ₹30 per bag in Central, North, and West India, ₹29 in East India, and ₹27 in South India.

 

For Q2FY26, pan-India average prices (adjusted for GST) rose about 7 per cent year-on-year but declined 2 per cent sequentially. South India posted the steepest drop, down 5 per cent Q-o-Q, reversing the sharp 9 per cent rise recorded in Q1FY26.

 

Weak Q2, challenges ahead for Q3

 

Elara Capital analysts expect Q2FY26 Ebitda per tonne to be hit by monsoon-related price weakness and lower exit prices compared with Q1FY26. “While some regions have seen discount rationalisation post-GST cut, sustained price increases will be difficult,” analysts said, noting that GST monitoring, capacity additions, and aggressive market share gains by larger players are likely to cap prices in the near term.

 

Rising costs add pressure

 

According to analysts, cost pressures are intensifying, with Middle East petcoke prices up 6 per cent in dollar terms and Indonesian coal producers reportedly fully booked for Q4CY25, particularly for lower-calorific value grades. Coal production in China is expected to decline under the government’s ‘anti-involution’ policy, while a weaker rupee raises the landed cost of imported fuel.

 

Regional outlook uneven

 

South India, which saw the sharpest gains in Q1, also faced the steepest correction in Q2, with prices down ₹18 per bag due to rains and GST adjustments, analysts highlighted. West India recorded a ₹7 per bag decline, while Central India remained stable. East and North India posted modest declines of ₹6 per bag each.

 

Demand recovery gradual

 

Dealer checks indicated that demand is beginning to improve post-GST implementation, with most regions witnessing an uptick in construction activity. However, festival-related labour shortages and delayed state fund disbursements may constrain the pace of recovery.  “Profitability will remain under pressure due to weaker prices, rising input costs, and structural challenges such as new capacity additions,” the brokerage said.