Cement stocks rally on GST buzz, but demand boost may be an illusion, report warns; UltraTech, Dalmia better placed than peers

Speculation on a potential GST cut from 28% to 18% has triggered a rally in cement stocks, driven by hopes of increased demand and pricing power. However, a report by Kotak Institutional Equities cautions that such optimism may be misplaced, noting that cement demand is largely insensitive to price changes as it accounts for less than 5% of total construction costs.

“We believe that the valuations of most companies within our coverage universe are demanding. Strong supply additions over FY2026-28E should keep sector utilisation and margins rangebound. UltraTech Cement (UTCEM) and Dalmia Bharat Ltd (DALBHARA) are better positioned than their peers. Thirumalai Chemicals Limited (TRCL) and Srinivasa Marbles (SRCM) remain our top SELLs," states the brokerage report.

It shows that in Q1FY26, their coverage experienced higher realisations (+4.6% quarter-on-quarter) due to price increases, which were more than offset by higher costs (+4.1% qoq). Margins touched multi-quarter highs of around ₹1,200/tonne (+36% year-on-year, +6.4% qoq).

Leaders such as UltraTech Cements (UTCEM), Dalmia Bharat Cements and Shree Digvijay Cements lost market share in Q1FY26, which helped boost prices and margins in the sector. "We estimate a ~50 mtpa (+7.7% yoy) capacity addition in FY2026E, primarily in five companies. Capacity addition is delayed—~40 mtpa starting in H2FY26E, which should shift the focus back to market share. The leader’s strategic adjustment is likely to intensify the market share battle in H2FY26E and put pressure on prices and margins. We believe margins have peaked in Q1FY26 and estimate Ebitda at ₹1,100/tonne in FY2026E compared to ₹1,200/tonne in Q1FY26 for our coverage," the report notes.

Early monsoon affected demand in May-June 2025. “Volumes for our coverage universe increased by 4.2% yoy, partly influenced by inorganic growth in ACEM (Ambuja Cements) and UTCEM. Our tracking universe’s (which accounts for 85% of the industry) volumes rose by 3.6% yoy, providing a clearer picture of industry growth, while DIPP data shows an 8.4% yoy growth in Q1FY26,” the report notes. 

Dealer feedback shows demand growth in the trade segment across regions for July-August 2025 remains in the low to mid-single digits. The report estimates a 6% increase in demand in FY2026E, considering a stronger second half of fiscal year 2026. The drift aligns with historical seasonal trends and shows resilience after a strong Q1FY26.

“Cement demand grew by 3.5-4% yoy in Q1FY26, according to our tracking universe, which is lower than DIPP data’s 8.4% yoy. Margins improved significantly in 1QFY26, but we believe they have reached their peak. Capacity additions in FY2026E are likely to put pressure on prices and margins in the second half of FY26E,” the report notes, advising caution on the sector due to high valuations.