According to Axis Securities, the cement sector's medium-to-long term outlook remains positive despite near-term earnings challenges. The brokerage expects Q2 FY27 earnings to reflect healthy cement demand, supported by sustained government infrastructure spending, resilient rural housing demand, and continued public capital expenditure execution. However, elevated fuel and input costs are likely to keep profitability under pressure, making the sustainability of recent cement price hikes critical for margin recovery. As per Axis Securities, the sector's positive medium-to-long term outlook is underpinned by strong structural demand, industry consolidation, and ongoing investments in cost-efficient operations. Recent market developments show that volume growth in a seasonally weak quarter was a positive surprise, with pricing picking up across regions in September and more increases potentially implemented in Q3 if demand recovery is visible.
Nirmal Bang expects the cement industry to deliver relatively stronger YoY volume growth in Q2 FY27, supported by a delayed monsoon and improved labour availability. However, gains are likely to be partly offset by flood-related disruptions in the East, the transition following new government formation and the onset of the Kharif season. Pricing remains relatively firm, with no correction from the Q1 FY27 exit level; in fact, all-India average prices have increased by ~₹11/bag MoM in Sep-26 and ~₹3/bag QoQ during Q2 FY27. While recent price hikes remain insufficient for full cost absorption, the brokerage expects limited margin pressure in Q2 FY27, supported by stable pricing and moderation in energy and packing costs during Jul-Aug '26.
For companies under Axis Securities' coverage, volume and revenue are expected to grow by 10% and 8% respectively, while EBITDA and PAT are expected to contract by approximately 4% and 35% year-on-year due to higher costs impacting profitability growth. On a sequential basis, performance is expected to be lower as volume, revenue, EBITDA, and PAT are expected to de-grow by approximately 8%, 9%, 27%, and 42% respectively, owing to increased fuel and logistics costs and negative operating leverage. The latest data reveals that imported petcoke prices have risen by 30-35% quarter-on-quarter, with thermal coal prices also rising 1-2% quarter-on-quarter, while packaging costs have increased due to high crude oil and gas prices. EBITDA per tonne will fall sequentially as well as year-on-year for most companies, with margin compression continuing until there's resolution to West Asia tensions.
Cement companies are stepping up green energy investments to lower power costs and emissions, with major players expected to add nearly 50% capacity by March 2028. According to Icra, green power capacity among major cement companies is expected to increase to 5.8-6 gigawatts by March 2028 from around 4 GW in March 2026. Power and fuel account for around 25-35% of total cement manufacturing cost, making green energy investments a critical cost-reduction initiative. Ratings agency Icra estimates investments of ₹12,000-13,000 crore over two years, with the additional capacity expected to generate annual savings of ₹6,200-6,700 crore and an estimated payback period of 1.8-2.2 years. However, companies with longer inventory cycles may see the impact of high Q2FY27 fuel costs on their financials through Q3FY27, as fuel costs can have a long lag of three months or more.
Nirmal Bang expects its cement universe to report 8.5% YoY volume growth in Q2 FY27, albeit with an 8.1% QoQ decline due to seasonal factors. Realisation is expected to improve 2.1% YoY and 1.3% QoQ, supported by recent price hikes. However, higher operating costs (+₹115/tonne QoQ) are likely to weigh on profitability, with Ebitda/tonne estimated at ₹881, declining 2.4% YoY and 4.9% QoQ. Ambuja Cements, Nuvoco Vistas, Birla Corp, and JK Lakshmi Cement are among Nirmal Bang's top picks in the sector. The recent corrections in large-cap and select mid-cap cement companies have improved valuation comfort and provided attractive opportunities for long-term investors, according to Axis Securities. The brokerage believes that companies with green energy and domestic coal and waste heat recovery system investments will outperform in FY27-28, with UltraTech Cement and JK Cement identified as the brokerage's top positive result plays.
