Cement Demand Soars, But Costs Squeeze Profit Margins
Nirmal Bang's Q4 FY26 outlook for the cement sector shows strong demand growth facing rising costs and supply chain issues. This forces companies to balance growth with profitability, as margins face near-term pressure. Even with expected volume growth and price recovery, rising input costs could temper the outlook.
Margin Pressure Amid Demand Upcycle
Nirmal Bang expects a demand-driven upcycle for cement in Q4 FY26, with improving utilization rates and anticipated price recovery. However, this strong demand faces significant risks. Escalating costs for key inputs like polypropylene bags, diesel for logistics, and primary energy sources such as coal and petcoke are projected to keep margins under pressure. Nirmal Bang notes that while price increases might offer some relief, cost inflation and operational bottlenecks are expected to hurt near-term profits. Key factors to watch include supply shortages, freight market stability, and the durability of price hikes. This puts the industry in a tricky spot, trying to grow despite inefficiencies and rising costs.
Valuation Adjustments for ACC and Ambuja Cements
Nirmal Bang kept 'Buy' ratings on ACC Limited and Ambuja Cements but lowered their target prices, reflecting caution on near-term profits.
For ACC, projections show an 11% compound annual growth rate (CAGR) for revenue, EBITDA (earnings before interest, taxes, depreciation, and amortization), and net profit (PAT) between FY25 and FY27. The stock trades at a forward Enterprise Value to EBITDA (EV/EBITDA) multiple of 6.2x for FY27, below its 5-year average of 13x. Despite its attractive valuation, Nirmal Bang lowered its target EV/EBITDA multiple from 10.6x to 8x for March 2028, citing the ongoing impact of higher fuel costs. This adjustment leads to a revised target price of ₹1,622, down about 15% from ₹1,963. ACC's stock has fallen approximately 21.66% year-to-date as of March 17, 2026, trading between ₹1,251.70 and ₹2,119.90 over the past 52 weeks. Analysts generally rate ACC a "Moderate Buy" with an average 12-month target of ₹1,930.50. However, MarketsMOJO recently issued a 'Sell' rating due to bearish technicals and a negative financial trend, despite a good quality grade and attractive valuation.
Ambuja Cements is projected to achieve revenue, EBITDA, and PAT CAGRs of 25%, 34%, and 17% respectively, from FY25 to FY27. Its stock trades at 9.6x FY27 EV/EBITDA, below its 5-year average of 11.8x. The brokerage lowered its target EV/EBITDA multiple to 11x for March 2028 (from 12x), citing moderated FY27 estimates and caution on volatile fuel costs. This results in a new target price of ₹558, down from ₹702. Ambuja Cements' stock has fallen 24.63% in 2026 and approximately 25.26% over the past year. Its consensus analyst rating is a "Moderate Buy," with an average 12-month target of ₹586.67. Recent sentiment has been mixed, with a notable gap-up opening on April 1, 2026, suggesting short-term optimism, yet technical indicators remain largely bearish.
Structural Weaknesses and Cost Pressures
The cement sector's profitability is being squeezed by rising input costs, mainly due to global tensions affecting West Asia. Imported petcoke and coal prices have surged from supply disruptions and higher freight costs. Energy and fuel alone make up 30-45% of production costs. Rising crude oil prices have also increased logistics and packaging costs, like for polypropylene bags. ICRA analysts expect operating profit to face pressure in the first half of FY2027, with EBITDA per metric ton projected to fall by 6-11% to ₹820-870 for FY2027. This cost squeeze happens in an industry with overcapacity, making it hard for companies to pass full cost increases to customers.
The sector's heavy reliance on imported fossil fuels exposes it to price swings and supply risks. While the government continues to prioritize infrastructure spending, with capital expenditure (capex) projected at ₹12.2 lakh crore by FY27, operational inefficiencies and cost pressures limit the direct benefit to cement margins. A shift in government spending from capex to subsidies poses a potential risk, though recent budgets show a continued focus on infrastructure.
Forward Outlook and Sector Resilience
Despite margin pressures, cement demand remains strong, driven by infrastructure, housing, and industrial growth. ICRA anticipates 7-8% industry growth for FY27. Larger players like UltraTech Cement, due to their scale and market leadership, continue to command premium valuations, trading at an EV/EBITDA of 23.2x. UltraTech's market capitalization stood at approximately ₹3.16 trillion as of March 31, 2026. Ambuja Cements, part of the Adani Group's cement business, aims to boost capacity utilization and improve plant-level EBITDA margins. The industry's ability to absorb these cost increases and maintain pricing discipline will be crucial for its profitability in the coming years.