UBS bullish on cement: Top picks Ambuja, UltraTech, Dalmia for FY26

UBS stays positive on cement sector, sees price recovery, margin gains, and consolidation ahead. Top stock picks for FY26 include Ambuja, UltraTech, Dalmia Cement

UBS on cement, top stocks to buy: Hopes of higher capacity addition and marginal improvement in prices, going ahead, has prompted global brokerage UBS to maintain its positive outlook on the cement sector.

 

From an investment viewpoint, it prefers Ambuja Cement, UltraTech Cement, and Dalmia Cement as top cement stocks.

 

UBS on cement prices

In a recent report, analysts at UBS explained that cement prices could improve in the financial year 2025-26 (FY26) and FY-2026-27 (FY27) after a sharp fall in FY25, and providing a “constructive outlook” on pricing over the medium term, driven by industry consolidation.

 

Notably, pricing surprised positively in the June quarter of the current financial year (Q1FY26), despite weak volume. Blended NSR rose around 4 per cent quarter-on-quarter (Q-o-Q) in Q1FY26 with prices flat sequentially in the north/west region and slightly down in central.

 

 

"These regions had robust price hikes in the previous two quarters. The laggards (ie, east and south) had strong price hikes in Q1FY26. July pricing was broadly stable to marginally lower, seasonally consistent," it said.

 

Channel checks suggest that the month of July witnessed prices moderating across regions (except in north India) with the monsoon setting in.

 

Further, while a price hike of ₹10 per bag took place in south India in August 2025, the announced hikes (in the first week of August) were rolled back in the east region.

 

Analysts believe the sustainability of prices remains a key variable to monitor during the quarter.

 

UBS on cement sector outlook: Key questions answered

 

Will cement volume growth recover?

Analysts at UBS believe demand drivers are in place to support volume recovery going ahead.

 

Cement demand from Housing (rural and urban), infrastructure, and commercial segments could drive volume growth at a likely 7-8 per cent CAGR or 1.0-1.2x real GDP growth over the medium term.

 

Will margins of cement companies improve?

UBS sees margin tailwinds for the cement sector and expects costs to come down over the next two to three years. The brokerage also remains positive on the long-term outlook for margins and return ratios, given the sector's strong consolidation trend.

 

Cement costs rose ₹170/tonne Q-o-Q (up 4 per cent) in Q1FY26 driven by negative operating leverage; and higher power and fuel costs.

 

However, costs fell 1 per cent Y-o-Y (slight deceleration from a ~5 per cent Y-o-Y decline, on average, for the past five quarters).

 

"We foresee relatively stronger margin levers for Ambuja and UltraTech, with their Ebitda/tonne gaps likely to widen versus peers," it said.

 

Structurally, UBS believes increased push towards renewable energy, waste heat recovery systems, and alternative fuels is positive for the sector, as it will lead to cost savings and could continue to lift margins in the next two to three years. Meanwhile, rising rail penetration, higher EV/CNG penetration, and M&A could drive down logistics costs further. 

 

Is consolidation in the cement sector over?

UBS thinks some form of consolidation in the cement sector could continue, driven by strong balance sheets, hunger for market share, and a still-fragmented industry.

 

"We estimate 53 per cent and 69 per cent of incremental capacities are being added by the top 2 and top 4 players, respectively. Although the 'easy' M&A targets have already been acquired in the past two years, we may see more expensive and/or hostile takeover attempts," UBS said.

 

The expansion plans announced by cement companies indicate 60mtpa/55mtpa for FY26/27 (ie, a 7 per cent CAGR), UBS noted. 

 

Cement sector: Valuation and stock picks

Cement sector, as per UBS estimates, is trading slightly above its five-year mean EV/Ebitda valuation ratio, reflecting near-term improvement in profitability.

 

The brokerage, however, sees room for further re-rating driven by expansion of margins and return ratios "by more than what appears to be priced in" over the medium to long term.

 

The brokerage's analysis indicates UltraTech share price is pricing in an 18 per cent Ebitda CAGR in FY25-30 vs 7 per cent in FY20-25, while Ambuja Cement share price is pricing in a 24 per cent Ebitda CAGR in FY25-30 vs 3 per cent in FY20-25.

 

Among individual stocks, Ultratech, Ambuja, Dalmia, and Shree Cement are trading at 20x, 17x, 13x, and 19x 1-year-forward EV/Ebitda in the large-cap space.

 

JK Cement share is the most expensive in the mid-cap segment, followed by Ramco Cement stock.