India’s cement sector is entering a more favorable phase as cost pressures are expected to ease and industry pricing dynamics improve, according to HSBC, which remains positive on the sector and has identified Ambuja Cements, UltraTech Cement, Dalmia Bharat and Nuvoco Vistas Corporation as its preferred picks.
The brokerage expects input costs to peak in the first quarter before gradually moderating, with a more pronounced decline likely during the second half of the financial year.
Lower costs could support margins
HSBC said recent declines in crude oil prices are likely to benefit cement manufacturers by reducing the cost of key inputs such as:
- Petcoke
- Diesel
- Transportation
Lower energy and freight expenses could provide relief to margins, which have been under pressure from elevated fuel and logistics costs.
The brokerage expects further cost reductions by FY28 if crude oil prices remain subdued, improving profitability and cash flows across the sector.
Capacity additions slowing
Another factor supporting the industry’s outlook is the moderation in new capacity additions.
According to HSBC, slower capacity expansion reduces the risk of oversupply and helps maintain a healthier demand-supply balance.
However, the brokerage noted that lower costs and slower capacity additions alone may not be sufficient to drive stronger earnings growth.
Pricing discipline remains critical
HSBC said maintaining pricing discipline will be essential for translating lower costs into higher profitability.
The brokerage believes cement producers will need to avoid aggressive price competition and sustain rational pricing strategies to preserve margins.
Without disciplined pricing, the benefits from lower input costs could be diluted.
Preferred stocks
Based on this outlook, HSBC maintains Buy ratings on:
- Ambuja Cements
- UltraTech Cement
- Dalmia Bharat
- Nuvoco Vistas Corporation
The brokerage said these companies are well placed to benefit from improving cost trends, strong market positions and potential gains from pricing discipline.
HSBC has retained Hold ratings on:
- JK Cement
- Shree Cement
reflecting a more balanced risk-reward profile at current valuations.
Stock performance
Ambuja Cements Ltd
With a market capitalization of ₹1.06 lakh crore, Ambuja Cements closed at ₹427.85, compared with the previous close of ₹424.05.
UltraTech Cement Ltd
UltraTech Cement, with a market capitalization of ₹3.36 lakh crore, closed at ₹11,401.25, up from ₹11,370.95 in the previous session.
Dalmia Bharat Ltd
Shares of Dalmia Bharat, which has a market capitalization of ₹32,040 crore, closed at ₹1,708.20, compared with ₹1,720.10 previously.
Nuvoco Vistas Corporation Ltd
Nuvoco Vistas, with a market capitalization of ₹11,202 crore, closed at ₹313.65, largely unchanged from its previous close of ₹313.60.
TL;DR:
HSBC remains bullish on the cement sector, expecting easing input costs and slower capacity additions to support profitability. The brokerage prefers Ambuja Cements, UltraTech Cement, Dalmia Bharat and Nuvoco Vistas, while maintaining Hold ratings on JK Cement and Shree Cement.
AI summary:
- HSBC expects cement sector cost pressures to ease in the coming quarters.
- Lower crude prices could reduce fuel and transportation costs.
- Slower capacity additions may improve demand-supply dynamics.
- Pricing discipline will be key to stronger earnings growth.
- Ambuja, UltraTech, Dalmia and Nuvoco are HSBC’s preferred stocks.
