Cement Demand to Grow in Q1 FY26; Price Hikes Boost Profitability: India Ratings
India Ratings and Research (Ind-Ra) has released its latest quarterly credit news digest on the cement sector, projecting mid-to-high single-digit demand growth in Q1 FY26. The report provides key insights on demand-supply dynamics, realisations, cost structures, profitability, and credit metrics of listed cement companies, along with region-wise housing trends and capacity additions.
According to Khushbu Lakhotia, Director, Corporate Ratings at Ind-Ra, “After a pick-up in momentum in 4QFY25, cement demand is likely to grow in a mid-to-high single digit in 1QFY26. Cement players took price hikes over the past couple of months after a sharp contraction in FY25 that affected profitability across the board. The southern market, that witnessed the sharpest contraction in FY25, is likely to have witnessed the most pronounced price hikes in 1QFY26 so far which is likely to materially lift-up the profitability of south-focused companies."
Ind-Ra notes that while monsoon-related slowdown in construction may temper prices in Q2, average pricing is expected to remain higher year-on-year. The overall pricing environment may remain stable in FY26, though concerns linger over the sustainability of price hikes amidst expected supply additions outpacing demand.
Improved Demand in 4Q, Momentum to Continue: Cement volumes witnessed a notable recovery of 10%-11% yoy in 4QFY25, following the subdued 2% growth in 1H. The recovery was driven by an 11%yoy pick-up in infrastructure to INR10.5 trillion, led by the central government capex after a similar yoy decline in 8MFY25. Despite this late recovery, the weak 1H restricted the overall demand growth for FY25 to 5%-6%, lowest since the pandemic affected FY21. Cement demand grew 7% yoy in April 2025, but the early onset of monsoons may affect growth in June. Nevertheless, Ind-Ra expects demand to grow in single digits in 1QFY26, on the weak base led by the general elections.
Price Hikes to Aid Realisations in 1QFY26 after Multi-decadal Fall in FY25; Sustainability Monitorable: Despite the healthy demand growth leading to a marginal increase in prices, cement realisations remained lower yoy in 4QFY25. Cement prices fell 5%–6% yoy in FY25, marking the sharpest annual decline in the past 20 years, led by the intensified market share race as additional supply outpaced demand growth. Southern India experienced the most pronounced price contraction due to oversupply, followed by the eastern region.
Cement players took multiple price hikes in April–May 2025, propelling yoy growth in prices after five quarters despite some rollbacks. The hikes were seen across regions with South leading the pack while West was flattish. However, as the onset of monsoons affects demand, prices are likely to witness a sequential decline over the next couple of months. Furthermore, Ind-Ra believes that the decadal-high capacity additions planned over FY26, along with the ramp-up of volumes from recently acquired capacities, would result in supply growth outpacing demand, keeping the pricing environment fragile. As a result, while prices are likely to witness some recovery in FY26, the supply surge could limit the growth.
Consolidation to Continue with Widening Gap Between Large and Small Players: The challenging operating environment in FY25 has widened the performance gap between large (Tier 1) and small (Tier 2) cement players. While the overall listed cement universe recorded 5%–6% yoy growth in sales volumes, Tier 2 players saw a decline of 2%–3%. Although Tier 1 companies have been consistently outperforming over the past few years, the performance gap become more pronounced in FY25.
The disparity was even more evident in profitability. Median EBITDA per tonne for Tier 1 companies declined around 20% yoy, while Tier 2 players experienced a steep drop of over 50% yoy. This sharp decline in profitability has weakened the credit metrics of small players, whereas Tier 1 companies have maintained comfortable financial headroom, potentially paving way for further consolidation. Around 45 million tonnes of acquisition was announced across five major transactions in FY25, over half of which involved assets in the fragmented Southern region. UltraTech Cement Limited (IND AAA/Stable) has completed the acquisition of Kesoram Industries Limited’s cement business annnounced in FY24. As a result, the combined market share of the top five cement companies rose to a little over 60% in April 2025 from 55% in FY24.
Moreover, Nuvoco Vistas Corporation Limited’s (debt rated at IND AA/Rating Watch with Developing Implications) resolution plan for for Vadraj Cement Limited was approved by National Company Law Tribunal in April 2025.
