Motilal Oswal sector of the week: Cement; check top bets, target here

According to Motilal Oswal, the cement sector presents an improving medium-term outlook and opportunities for investors

Cement sector poised for recovery as demand strengthens and fuel costs ease

 

India's cement sector appears to be approaching an earnings inflection point after an extended phase of estimate downgrades, supported by improving demand fundamentals and easing input cost pressures. While the first half of FY27 is expected to remain subdued due to the lagged impact of elevated fuel costs, the second half is likely to witness a meaningful recovery in profitability as lower energy costs begin to flow through the financials and construction activity gathers pace.

 

Demand remains underpinned by sustained government spending on infrastructure and affordable housing. Higher capital expenditure by both the central and state governments, particularly across roads, railways, urban infrastructure, and housing projects, is expected to support cement demand growth of around 7–8 per cent year-on-year in FY27. Regionally, the North and Central markets have maintained healthy momentum, while demand in the East and West has improved following a slower start to the calendar year. The South remains relatively soft, although broader demand is expected to strengthen in the post-monsoon period.

 

 

On the cost front, the sharp correction in petcoke and coal prices following their spike during the West Asia crisis has significantly improved the sector's margin outlook. Fuel prices have declined by roughly 10–16 per cent from recent peaks, reducing expected cost inflation and limiting the scope for further earnings downgrades. Although operating margins are likely to remain under pressure during the first half of FY27 due to the delayed impact of earlier fuel cost increases, profitability is expected to recover meaningfully in the latter half as lower energy costs coincide with stronger volumes and improved operating leverage.

 

Despite an estimated 57 million tonnes per annum of grinding capacity additions during FY27, supply dynamics are expected to remain balanced. Capacity commissioning and ramp-up are likely to be staggered throughout the year, limiting effective supply growth and keeping industry capacity utilisation broadly stable. Pricing is also expected to remain disciplined, with gradual and sustainable price increases rather than aggressive hikes.

 

Overall, the sector presents an improving medium-term outlook. The combination of infrastructure-led demand, moderating fuel costs, and stable industry utilisation is expected to restore earnings momentum after a challenging period. Valuations remain broadly aligned with long-term averages, suggesting that improving profitability and stronger earnings visibility could support a more favourable risk-reward profile for the sector over the coming quarters.  Check - TOP GAINERS NSE | TOP LOSERS NSE

 

UltraTech | TP – ₹13,800

 

UltraTech Cement remains well-positioned for sustained growth, supported by improving cost efficiencies, the successful integration of acquired assets, and a strong balance sheet. Management expects near-term cost pressures from fuel, packaging, and logistics to remain manageable through mitigation measures such as fuel mix optimisation, supplier diversification, and long-term input contracts. With the integration of acquired assets completed ahead of schedule and annual capex of INR 80–100 billion planned to expand capacity to 240 mtpa by FY28, the company is well placed to capitalise on robust industry demand while maintaining a net debt-to-Ebitda ratio below 1.0x, supporting its long-term growth trajectory.

 

JK Cement | TP – ₹6,330

 

JK Cement is well-positioned to deliver strong volume-led growth, supported by ongoing capacity expansion and management's target of double-digit volume growth against expected industry growth of 6–8 per cent in FY27. While elevated fuel, oil, and packaging costs are likely to pressure margins in the near term, the company is mitigating the impact through price hikes across grey and white cement, cost-saving initiatives, and a higher share of green power. With a robust expansion pipeline, improving utilisation across new capacities, and a continued focus on operational efficiencies, JK Cement remains on track to strengthen its market position and support long-term earnings growth.

 

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Disclaimer: This article is by Motilal Oswal Financial Services Research Desk. Views expressed are their own.