Goldman Sachs Sees Q3 Cement Profit Slump, Predicts Q4 Rebound

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AuthorVihaan Mehta|Published at:
Goldman Sachs Sees Q3 Cement Profit Slump, Predicts Q4 Rebound
Overview

Goldman Sachs forecasts a weak third quarter for India's cement sector profit due to pricing pressure, despite strong volumes. However, the outlook brightens considerably for the fourth quarter, with expectations of improved pricing and sustained volume momentum. Looking ahead, the sector is poised for structural profitability gains driven by steady demand, cost efficiencies, ongoing consolidation favoring larger players, and projected EBITDA improvement by FY26.

Cement Sector Outlook: Near-Term Weakness, Q4 Recovery Ahead

Goldman Sachs forecasts a challenging third quarter for India's cement sector, with profitability expected to be squeezed by pricing pressures. Despite this near-term headwind, analysts anticipate a significant improvement in the fourth quarter. Pulkit Patni, India Industrials Analyst at Goldman Sachs, noted that while October began weakly, November and December saw stronger volume performance, a momentum expected to continue into the final quarter of the fiscal year.

Structural Gains and Long-Term Growth Drivers

Looking beyond the immediate quarters, the outlook for the cement sector's profitability is projected to improve on a structural basis over the next couple of years, extending to fiscal year 2026. Goldman Sachs estimates an earnings before interest, tax, depreciation, and amortisation (EBITDA) improvement of ₹200-250 per tonne for the industry. This positive long-term view is underpinned by steady demand growth, ongoing cost efficiencies, and favorable consolidation trends that continue to benefit larger, established players.

Capacity Additions and Cost Optimization

While demand is expected to grow at a compound annual growth rate (CAGR) of 7-8% over the next two years, the sector faces a near-term challenge from significant new capacity additions anticipated in the coming six to nine months. This may keep prices subdued in the first half of the next fiscal year. However, larger companies are actively pursuing cost-saving measures, including the transition to green power, adoption of waste heat recovery systems, and optimisation of logistics through a shift from road to rail transport. These efforts, combined with operating leverage, are expected to facilitate the projected EBITDA improvement.

Consolidation and Regional Preferences

Consolidation remains a key structural theme, with potential for further deals as smaller players grapple with profitability challenges. Larger entities benefit from scale, lower acquisition costs, and efficient greenfield expansions, which should enhance return ratios. Goldman Sachs expresses caution regarding North India due to impending capacity additions. Conversely, the firm is more constructive on the West and South regions, where demand drivers and supply conditions appear better balanced.

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