Motilal Oswal sector of the week: Cement; check top stocks to buy and hold

Motilal Oswal sees upside in UltraTech Cement and JK Lakshmi Cement as they expect a strong profit and margin growth over FY25-FY27

In spite of a generally muted demand environment, the Indian cement industry has demonstrated remarkable resilience in recent months, with pricing trends continuing to be strong. 

 

The average cement price in India as of May 2025 has increased by ₹5 per bag on a monthly basis and by ₹16 per bag on a quarterly basis in the first quarter of the financial year 2026 (FY26), which translates to a 5 per cent increase. Sharp price increases in the southern and eastern markets are the main causes of this pricing strength, however, other regions have also seen modest advances throughout the quarter.

 

 

Cement prices in the South increased by ₹35-40 per bag in April, a significant 12 per cent monthly increase. Another wave of rises was implemented in May, though it is unclear if these increases will be sustainable. Southern cement manufacturers are now putting profitability first after a period of low margins, carefully balancing volume expansion with margin improvement. 

 

Following a surge of mergers and acquisitions, the region is now seeing asset integration as businesses attempt to match recently purchased facilities with their operational requirements.  Catch Stock Market Latest Updates Today LIVE 

Prices in the eastern region have increased by 7 per cent so far this quarter, although attempts to enact more raises in May were swiftly retracted, indicating the fierce competition in the market. With a projected 14 million tonnes of additional grinding capacity expected to be installed annually in FY26 and FY27, the East is well-positioned for a substantial capacity increase. Over the longer run, this surge in supply is anticipated to intensify competition and raise price volatility.

 

Prices in the West showed a little increase of ₹10 per bag in May after being mostly unchanged in April. Government infrastructure projects and a resurgence in private and commercial building contributed to the region's robust cement offtake in April. However, early May saw a softening of demand as a result of labour shortages and unseasonal precipitation. Another factor preventing future price increases in the area is the increased movement of cement across regions.

 

Owing mostly to the elimination of previous incentives, the North and Central areas saw slight price rises in April of up to ₹5 per bag. But maintaining these increases has proven difficult, and average prices have increased by around 2 per cent so far this quarter. Although a pre-monsoon upswing is expected, demand in these areas is still muted, especially from the individual house segment and the larger building sector. Significant capacity additions are anticipated in both regions in FY26, which should maintain price restraint in the near future. 

  Overall, favourable fuel prices and increased cost efficiencies have sustained the sector's profitability even if demand has been weak owing to labour disputes, unfavourable weather, and slower government investment. Even though petcoke prices increased earlier in the year, current drops should help future fuel cost optimisation. 

 

A strategic focus on striking a balance between volume growth and profitability, continuous consolidation, and the possibility of a demand recovery as macroeconomic conditions improve and government spending increases supports the industry's optimistic outlook. The sector's growth in the approaching quarters will depend on maintaining recent price increases in the face of impending capacity expansions and changing demand dynamics. 

Stocks in focus 

UltraTech Cement

Target price: ₹13,900

 

UltraTech Cement’s Q4FY25 results were in line with expectations, with Ebitda up 12 per cent year-on-year (Y-o-Y) at ₹46.2 billion and profit after tax (PAT) up 8 per cent Y-o-Y at ₹24.9 billion. 

 

Ebitda per ton fell 4 per cent Y-o-Y, while margins remained flat at 20 per cent. Despite early FY26 demand weakness due to heatwaves, growth is expected to pick up, with double-digit volume growth targeted. Cost savings of ₹86/tonne were achieved in FY25, with further ₹214/tonne targeted by FY27. Net debt/Ebitda is strong at 0.5 times. 

 

The UltraTech Cement stock is valued at 20x FY27E EV/Ebitda. We estimate a CAGR of 15 per cent/29 per cent/34 per cent in consolidated revenue/Ebitda/PAT over FY25-FY27, aided by inorganic growth. 

JK Lakshmi Cement 

Target price: ₹1,000

 

JK Lakshmi Cement's Q4 FY25 Ebitda beat estimates, driven by higher volumes (~3 per cent beat) and realisations (~5 per cent beat). Ebitda/tonne declined 5 per cent Y-o-Y to ₹976 (est. ₹837), with OPM flat Y-o-Y at ~19 per cent (est. ~17 per cent). Cement prices remain range-bound post-4Q due to seasonality. 

 

The brand revamp is complete with positive feedback, and premium products continue to perform well. Cost efficiency initiatives are expected to yield ₹100–120/tonne in savings over 12–18 months. We estimate revenue/Ebitda/PAT CAGR of ~11 per cent/26 per cent/32 per cent over FY25–27 and reiterate our Buy rating.