Whalesbook
Cement Firms Face Rising Costs Amid Weak Pricing Power
HDFC Securities sees resilient cement demand but notes pricing power remains weak, even with sector consolidation. Energy costs are projected to climb by Rs 200–300 per metric tonne and packaging costs by Rs 100 per metric tonne from mid-Q1 FY27. Geopolitical tensions in the GCC region are worsening these cost pressures.
Sustained cost rises could lift FY27–28 operating expenses by Rs 300-400 per metric tonne, requiring yearly price increases of Rs 25–30 per bag. Price increases of Rs 10–30 per bag already implemented will likely face scrutiny from dealers after mid-April. HDFC Securities expects cost pressures to peak by H1 FY27, but price hikes will probably lag behind rising costs.
HDFC Securities Cuts Margin Estimates
In response, HDFC Securities lowered its average margin estimates for FY26/27/28E by roughly Rs 10/75/45 per metric tonne. The firm now anticipates margin expansion of Rs 120/60/95 per metric tonne for FY26E/FY27E/FY28E. EBITDA and target price estimates were reduced across all covered companies.
Ambuja Cement's Valuation Multiple Lowered
HDFC Securities specifically cut Ambuja Cement's target multiple to 15.5x from 16.5x. This change reflects slower-than-guided margin improvement and capacity growth. Ratings and valuation multiples for other companies in the coverage are unchanged.
Top Cement Stock Picks
Despite these challenges and revised estimates, HDFC Securities names UltraTech Cement, JK Cement, and Ambuja Cement as its top sector picks. These firms are expected to better manage cost and pricing pressures than competitors.