Cement EBITDA per tonne is set to slide below Rs 880 in Q2 as monsoon slows demand and fuel costs jump, HDFC Securities says. A recovery in H2 hinges on easing West Asia tensions.
Alpha Score of 40 reflects weak overall profile with moderate momentum, poor value, moderate quality, moderate sentiment.
Cement makers will lose more than Rs 100 per tonne in earnings in the September quarter, the monsoon slowing construction activity and fuel costs climbing sharply, according to a report from HDFC Securities.
Industry EBITDA per tonne is expected to slide below Rs 880 in Q2FY27 from roughly Rs 980 in the first quarter. Prices across regions rose only 2-3% quarter-on-quarter during April-June despite rising energy and packaging costs. That modest gain leaves little room for a further increase now.
“Cement prices rose a modest ~2-3% q-o-q across regions,” the brokerage wrote in a note.
Costs are the bigger headwind. The West Asia turmoil pushed up coal and pet coke prices in Q1, and the report expects fuel costs to peak in the current quarter. Total variable costs, including packing materials, will rise by roughly Rs 150 per tonne compared with the first quarter, HDFC Securities estimated. The seasonal drop in capacity utilisation adds another Rs 50 per tonne in operating deleverage.
“The West Asia turmoil has driven up coal/pet coke consumption prices in Q1FY27E, and these are expected to peak in Q2FY27E, in our view,” the report said.
Of the 2-3% price gain reported in Q1, most came in June after a subdued May. The delayed monsoon allowed a brief window of construction activity. That window is now closing. The second quarter typically sees demand soften as rains spread across the country.
The margin squeeze applies to every major producer in the sector: UltraTech Cement, Ambuja Cements, ACC and Dalmia Bharat. None of them will escape the combined pressure of higher costs and lower volumes.
HDFC Securities sees relief in the second half of the fiscal year if the West Asia conflict eases. Fuel and packing costs would then start falling. The brokerage remains positive on the longer-term demand trajectory.
“We remain positive on long-term demand, which should also drive realisation. This, along with the expected cost cool-off, should lead to margin rebound H2FY27E onward,” the report said.
For investors, the current quarter shapes up as the likely trough for margins, assuming the cost assumptions hold and the monsoon does not drag demand deeper than expected. A recovery would need fuel prices to peak and then decline, and the construction season to pick up after the rains end.
Cement stocks have already priced in some of this weakness. The question is how much. If the second-half recovery materialises as HDFC Securities expects, the sector could see a re-rating later in the fiscal year.
A concrete outcome to track: the timing of the post-monsoon demand pick-up in October and November. That will determine how quickly capacity utilisation returns and whether margins can climb back above Rs 1,000 per tonne in the second half.
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