Cement sector sees 5% price surge in Q1FY26; UltraTech, JK Cement top buy

Economic Times

17-05-2025

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UltraTech Cement: Buy| Target Rs 13900| LTP Rs 11,889| Upside 17%
JK Cement Ltd (JKCE): Buy| Target Rs 6000| LTP Rs 5243| Upside 14%
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The Indian cement sector has shown notable resilience in recent months, with pricing trends remaining robust despite a generally subdued demand environment.As of May 2025, the all-India average cement price has risen by INR 5 per bag on a month-on-month basis and by INR 16 per bag quarter-to-date in the first quarter of FY26, translating to a 5% increase.This price strength is primarily attributed to sharp hikes in the southern region, followed by the eastern markets, while other regions have also reported moderate gains over the quarter.In the South, cement prices surged by INR 35-40 per bag in April, marking a substantial 12% monthly jump. This was followed by another round of hikes in May, although the sustainability of these increases remains to be seen.After a period of weak margins , southern cement producers are now prioritizing profitability, carefully balancing volume growth with margin improvement.The region is also witnessing the integration of assets following a wave of mergers and acquisitions, as companies work to align newly acquired facilities with their operational standards.The eastern region saw a 7% quarter-to-date rise in prices, although attempts to push through further hikes in May were quickly rolled back, reflecting the competitive intensity in the market.The East is poised for significant capacity expansion, with an estimated 14 million tonnes per annum of grinding capacity to be added in both FY26 and FY27. This influx of new supply is expected to heighten competition and could lead to increased price volatility over the medium term.In the West, prices remained largely flat in April but saw a modest INR 10 per bag increase in May. The region benefited from strong cement offtake in April, driven by government infrastructure projects and a rebound in private and commercial construction.However, demand softened in early May due to unseasonal rains and labor shortages. Increased inter-regional movement of cement is also helping to keep a lid on further price hikes in the region.The North and Central regions experienced minor price increases of up to INR 5 per bag in April, mainly due to the withdrawal of earlier discounts.However, sustaining these hikes has proved challenging, and average prices are up around 2% quarter-to-date. Demand in these regions remains subdued, particularly from the individual housing segment and the broader construction sector, though a pre-monsoon uptick is anticipated.Both regions are set to see significant capacity additions in FY26, which should keep pricing disciplined in the near term.Overall, while demand has been soft due to labor issues, adverse weather, and slower government spending, the sector's profitability has been supported by favorable fuel prices and improved cost efficiencies.Although petcoke prices rose earlier in the year, recent declines are expected to help optimize fuel costs going forward.The industry's outlook remains positive, underpinned by a strategic focus on balancing volume growth with profitability, ongoing consolidation, and the potential for a demand recovery as macroeconomic conditions improve and government spending picks up.Sustaining recent price hikes amid upcoming capacity expansions and evolving demand dynamics will be key to the sector's performance in the coming quarters. UltraTech Cement's Q4FY25 results were in line with expectations, with EBITDA up 12% YoY at INR46.2b and PAT up 8% YoY at INR24.9b.EBITDA per ton fell 4% YoY, while margins remained flat at ~20%. Despite early FY26 demand weakness due to heatwaves, growth is expected to pick up, with double-digit volume growth targeted.Cost savings of INR86/t were achieved in FY25, with further INR214/t targeted by FY27. Net debt/EBITDA is strong at 0.5x. The stock is valued at 20x FY27E EV/EBITDA. We estimate a CAGR of 15%/29%/34% in consolidated revenue/EBITDA/PAT over FY25-FY27, aided by inorganic growth.JKCE plans to double its grey cement capacity by FY30 through greenfield and brownfield projects across North, Central, South, and East India. This expansion will strengthen its market position and enhance its pan-India presence.The company is improving its cost structure with efficient equipment, upgrades, and sustainability measures like increasing green power and Thermal Substitution Rate (TSR). It has delivered robust volume (grey cement) CAGR of ~16% over FY20-25.We estimate JKCE's revenue/EBITDA/PAT CAGR at 15%/21%/33% over FY25-27, driven by strong volume growth and profitability. We maintain a buy rating, as JKCE is well-positioned among mid-sized cement firms(The author is Head – Research, Wealth Management, Motilal Oswal Financial Services Ltd : Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)