Bank of America has lowered target prices across its cement coverage, flagging rising input cost pressures linked to the Middle East conflict, while maintaining a selective bullish stance on large players.
The brokerage continues to recommend Buy on Ambuja Cements (target price cut to Rs 590 from Rs 620), UltraTech Cement (Rs 13,400 from Rs 14,000) and Dalmia Bharat (Rs 2,300 from Rs 2,500). Shree Cement remains an Underperform, with its target price lowered to Rs 23,500 from Rs 24,600.
BofA believes the upcoming Q4 earnings season is unlikely to be a major trigger for the sector, with attention shifting to forward-looking commentary amid rising costs. The brokerage estimates a Rs 200–250 per tonne increase in costs from Q1FY27, driven by higher fuel prices, packaging costs and freight.
The spike in crude oil has pushed up prices of pet coke and imported coal significantly, while even ancillary costs such as cement bags have surged—putting pressure on margins across the industry.
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Pricing Hikes Emerge As Key Catalyst
In this backdrop, cement price increases are seen as the most critical near-term lever. Despite strong demand over the past few quarters, pricing has remained relatively subdued, with only selective regional hikes.
BofA estimates that the industry may need price hikes of around 6–7% before the monsoon to fully offset the cost escalation. The brokerage adds that pricing discipline could improve, supported by weak profitability among mid-sized players, which limits the scope for aggressive price competition.
Demand And Capex Trends
While demand has been robust, the brokerage flags early signs of moderation, particularly in March, along with concerns around a potential slowdown in government-led capital expenditure. Additionally, companies may reassess their expansion plans, with the possibility of delays in capacity additions scheduled for the medium term if cost pressures persist.
BofA cautions that elevated crude prices could weigh on sector valuations, given the strong link between fuel costs and profitability. With earnings estimates being revised downward, valuation multiples may also face pressure if input costs remain elevated. Despite near-term challenges, BofA remains constructive on the medium-term outlook, citing improving demand dynamics and the sector's ability to pass on costs over time.
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