Can Cement Stocks Deliver a Strong Q4 Despite Rising Fuel Costs and Margin Pressure? 

Synopsis: India’s cement sector is expected to report a strong Q4FY26 driven by healthy demand and improving prices, although elevated fuel and packaging costs may continue to weigh on near-term margins and profitability.

The Indian cement sector continues to remain on a strong growth trajectory, supported by sustained government-led infrastructure spending, resilient rural housing demand, and robust construction activity during the peak season. Demand recovery has remained healthy across most regions, with rural markets outperforming urban markets due to favourable monsoon conditions, positive wage growth, and improved affordability. While the long-term outlook remains constructive, the sector is currently entering a phase where cost pressures from fuel and packaging are re-emerging, making pricing discipline and price pass-through the most critical profitability drivers for the upcoming quarters.

Axis Securities maintains a positive medium-term outlook on the sector, supported by expected demand CAGR of 6–8 percent  over FY26–FY28, strong government capex, and structural support from rural recovery and GST rationalisation. However, near-term profitability remains highly sensitive to input cost volatility, making pricing discipline the key determinant for margin performance. The brokerage’s preferred positive result plays remain UltraTech Cement and Dalmia Bharat.

Demand Recovery Gains Strength Towards FY26-End

The cement demand trends were healthy for Q4FY26 owing to consistent execution of infrastructure work led by the government and strong rural demand. Volume growth is estimated to clock 10-11 percent  year-on-year in Q4FY26 on account of high construction work during the peak period. Rural demand would be strong against the backdrop of above-normal monsoon showers and wage growth, while continued infrastructure investments are expected to drive volumes. 

Government data on core sector industries also indicated that production of cement grew by 10 percent  year-on-year in January-February 2026 on the back of high levels of construction/infrastructure work. The FY26 cement demand numbers could end up at a growth of 7-8 percent .

Rural and Urban Demand Trends

The rural demand will continue to be robust, aided by favorable monsoon rains, rising real wages, and the government’s previous policy of increasing the MSP on Kharif crops by 5-10 percent  for FY25-26. On the other hand, the urban demand will continue to be relatively low, with new housing projects limited due to lower launches in Q4FY26. Therefore, urban demand growth will lag behind that of rural demand in the coming period.

Sector Earnings Expectations

For those under coverage, it is estimated that the volumes, sales, EBITDA, and PAT will increase year-on-year by about 11 percent , 12 percent , 8 percent , and 1 percent , respectively, aided by positive demand environment conditions. However, the profitability will be relatively weak year-on-year, owing to poor realizations and modestly elevated input cost levels. Sequentially, there should be an appreciable pick up in results, with volumes, sales, EBITDA, and PAT estimated to have increased by 18 percent , 20 percent , 42 percent , and 100 percent , respectively, owing to the improvement in cement price realization and operating efficiency, together with better fixed cost absorption amid peak demand seasonality.

Price Recovery Begins Amid Improving Discipline

While there were poor pricing trends throughout FY25 and FY26 until now, the fourth quarter of FY26 is beginning to show initial signs of stabilization and improvement. The prices of cement, which fell by about 1-2 percent  quarter-over-quarter in Q3FY26, have experienced selective increases of about Rs. 10-20 per bag in Q4. These increases have been driven by the high season in construction and good behavior on the part of major players.

On a regional level, the Southern and Eastern zones have experienced higher price increases of around Rs. 10-20 per bag, whereas the Central, Northern, and Western zones have experienced moderate increases of Rs. 8-10 per bag. As a reaction to the sudden rise in fuel prices, the cement companies have taken new price increases of Rs. 30-40 per bag, depending on the region, into account.

Cost Dynamics: Sharp Increase in Fuel and Input Costs

Costs from inputs have gone up significantly during Q4FY26 and are likely to continue into Q1FY27. The price of imported pet coke has surged considerably to about USD 155-160 per tonne from USD 115-120 seen earlier in FY26, while the price of imported coal has gone up to USD 140-150 per tonne. A USD 10 per tonne hike in the fuel price translates to an estimated Rs. 40-50 per tonne hike in the operating cost, suggesting that the current surge could translate into a marginal cost effect of Rs. 200-250 per tonne. Additionally, higher gypsum prices and rising polymer prices have made packaging costlier, bringing the total cost escalation close to Rs. 300-350 per tonne.

Margin Outlook

For Q4FY26, earnings before interest, taxes, depreciation, and amortization (EBITDA) per tonne will be lower by 9 percent  year-on-year at Rs. 1,075 per tonne from Rs. 1,175 per tonne during Q4FY25. Sequentially, EBITDA per tonne is expected to increase by 17 percent  owing to favorable pricing. EBITDA margin is expected to be lower by 100 basis points on a yearly basis, though on a quarterly basis, EBITDA margin will be higher by 300 basis points on account of operating leverage.

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