Kotak Securities has maintained a cautious view on the cement sector despite robust growth in demand. Pricing has also held up across most regions, even as prices soften marginally.
Notably, the decline in cement prices are lower compared to previous-year trends, and limited to regions such as East for the most part.
On the other hand, demand for cement has been robust with margin pressures on the sector expected to peak out in second quarter of fiscal 2027, or the July to September period.
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Relief in margin pressure will lead to subsequent improvement, in spite of an extended period of conflict. Yet, the brokerage has maintained a cautious view on the sector considering demanding valuations.
Previously, many dealers had attributed weaker pricing to moonsoon, even when they outlined that prices remained stable in the South and West.
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Last week, JPMorgan had flagged that higher costs expected by cement companies in Q2 could further pressure margins. However, relatively low market expectations and signs of improved pricing discipline in Q1 provide some downside protection to earnings estimates.
Top 11 cement companies reported industry-wide volume growth of 9% YoY in Q1, supported potentially by higher government capex. Central and state government capex rose 23% and 6%, respectively, during the quarter.
Though, the brokerage had outlined that this growth could be difficult to keep up and flagged a risk to the strong momentum seen in the June quarter.
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