Brokerage Expects Infrastructure Spending, Lower Fuel Costs and Stable Pricing to Drive a Strong Recovery in the Second Half of FY27; Sees Attractive Investment Opportunities Across the Sector

India's cement sector is approaching a significant turning point after enduring several quarters of margin pressure caused by elevated fuel costs and volatile input prices. According to Motilal Oswal Financial Services (MOFSL), the industry is now entering an earnings recovery cycle, supported by improving demand, easing energy costs, disciplined pricing, and sustained government-led infrastructure investments.

The brokerage believes that while profitability may remain under pressure during the first half of FY27 due to the delayed impact of previously high coal and petcoke prices, the second half of the financial year is likely to witness a meaningful improvement in operating margins and earnings.

With India's infrastructure pipeline remaining robust and capacity utilisation expected to stay healthy despite new capacity additions, Motilal Oswal sees an attractive medium-term opportunity in the cement sector. Among its preferred investment ideas are UltraTech Cement and JK Cement, both of which are expected to benefit from strong volume growth, capacity expansion, and operational efficiencies.

Cement Sector Nearing an Earnings Inflection Point

The brokerage believes that the prolonged period of earnings downgrades in the cement industry may finally be coming to an end.

Several macro and industry-specific factors are now aligning to improve profitability.

Key Growth Drivers

Strong infrastructure spending.
Affordable housing projects.
Declining fuel costs.
Stable industry pricing.
Improving operating leverage.
Better capacity utilisation.

These factors are expected to restore earnings momentum over the coming quarters and improve investor sentiment toward the sector.

Infrastructure Spending Continues to Fuel Demand

India's cement demand remains firmly supported by government-led capital expenditure.

Large-scale investments in infrastructure continue to generate strong demand across the construction ecosystem.

Major Demand Drivers

National highway projects.
Railway infrastructure.
Metro rail expansion.
Affordable housing.
Smart city development.
Industrial corridors.
Commercial real estate.
Urban infrastructure.

The continued emphasis on public infrastructure by both the Central and State Governments is expected to sustain healthy cement consumption throughout FY27.

Demand Growth Expected to Reach 7–8%

Motilal Oswal expects India's cement demand to grow approximately 7–8% year-on-year during FY27.

Regional demand trends remain encouraging.

Regional Outlook

North India

Strong infrastructure activity.
Healthy pricing environment.
Stable construction demand.

Central India

Robust government spending.
Rising rural housing demand.

East India

Construction activity improving after a relatively slow start.

West India

Gradual recovery in infrastructure and commercial projects.

South India

Demand remains relatively soft.
Stronger recovery expected after the monsoon season.

Overall, analysts expect construction activity to accelerate during the second half of the financial year.

Fuel Cost Correction Brightens Margin Outlook

One of the biggest positive developments for the sector has been the decline in energy costs.

After rising sharply due to geopolitical tensions in West Asia, prices of key fuels have corrected significantly.

Fuel Cost Trends

Petcoke prices have fallen.
Imported coal prices have eased.
Fuel costs are approximately 10–16% below recent peaks.

Since energy accounts for a substantial portion of cement production costs, lower fuel prices are expected to improve operating profitability over the coming quarters.

Operating Margins Expected to Improve in H2 FY27

Although the first half of FY27 may continue to reflect the impact of higher-cost inventory, brokerages expect margins to improve considerably in the second half.

Factors supporting margin expansion include:

Lower fuel expenses.
Higher production volumes.
Better operating leverage.
Stable pricing.
Improved cost efficiencies.

As lower energy costs begin flowing through financial statements, earnings growth is expected to accelerate across the sector.

Capacity Additions Unlikely to Disrupt Industry Balance

The cement industry is expected to add nearly 57 million tonnes per annum (MTPA) of grinding capacity during FY27.

Despite this substantial expansion, Motilal Oswal does not anticipate severe oversupply.

The brokerage believes:

New capacities will be commissioned gradually.
Production ramp-up will be phased.
Capacity utilisation will remain broadly stable.
Demand growth will absorb incremental supply.

Balanced supply dynamics should support pricing discipline across major markets.

Pricing Environment Expected to Remain Healthy

Unlike previous expansion cycles, the current pricing environment remains relatively stable.

Analysts expect:

Moderate price increases.
Disciplined competition.
Healthy regional pricing.
Limited aggressive discounting.

Stable pricing combined with lower production costs should support healthy EBITDA growth during the second half of FY27.

Valuation Remains Attractive

Despite improving fundamentals, cement stocks continue to trade close to their long-term valuation averages.

Motilal Oswal believes this creates an attractive opportunity for long-term investors as earnings recovery gathers momentum.

Improving visibility on profitability could gradually lead to valuation re-rating across the sector.

UltraTech Cement Remains the Preferred Large-Cap Pick

Motilal Oswal continues to favour UltraTech Cement as its top large-cap investment idea.

Target Price: ₹13,800

Key Investment Positives

Industry leadership.
Strong balance sheet.
Successful integration of acquired assets.
Fuel cost optimisation.
Logistics efficiency.
Long-term supplier contracts.
Large-scale capacity expansion.

Management plans to expand total cement capacity to 240 million tonnes per annum by FY28, supported by annual capital expenditure of approximately ₹8,000–10,000 crore.

The company's financial strength also allows it to pursue growth without significantly increasing leverage.

JK Cement Offers Strong Mid-Cap Growth Potential

Motilal Oswal also remains constructive on JK Cement, citing its expansion strategy and operational improvements.

Target Price: ₹6,330

Growth Drivers

Double-digit volume growth target.
Capacity expansion.
Improving utilisation.
Cost optimisation.
Higher renewable energy usage.
Strong white cement franchise.

Management expects the company to outperform overall industry volume growth during FY27.

Continued investments in renewable power are also expected to improve long-term cost competitiveness.

Operational Efficiency Becomes a Competitive Advantage

Leading cement manufacturers continue investing heavily in cost optimisation initiatives.

These include:

Alternative fuel usage.
Renewable energy.
Logistics optimisation.
Fuel mix diversification.
Digital manufacturing.
Supply-chain efficiencies.

Companies successfully reducing production costs are expected to outperform peers during the next earnings cycle.

Green Energy Adoption Accelerates

The cement industry is increasingly investing in sustainable energy solutions.

Benefits include:

Lower power costs.
Reduced dependence on conventional fuels.
Improved ESG performance.
Better long-term profitability.

Renewable energy adoption is becoming an important differentiator among leading cement manufacturers.

Risks That Investors Should Monitor

Despite the improving outlook, several challenges remain.

Key Risks

Unexpected increase in coal prices.
Rising petcoke costs.
Delays in infrastructure spending.
Weak monsoon-related construction activity.
Aggressive capacity expansion.
Pricing competition.
Slower private sector investment.

Managing input costs while maintaining pricing discipline will remain crucial for the sector.

Long-Term Industry Outlook Remains Positive

India continues to be among the world's fastest-growing cement markets.

Structural growth drivers include:

Rapid urbanisation.
Government infrastructure investment.
Housing demand.
Industrial development.
Manufacturing expansion.
Commercial construction.
Logistics infrastructure.

These factors are expected to sustain healthy cement demand over the next several years.

Key Factors Investors Should Watch

Going forward, market participants should monitor:

Financial Metrics

EBITDA per tonne.
Operating margins.
Volume growth.
Cost per tonne.
Capacity utilisation.

Business Indicators

Cement price trends.
Fuel cost movement.
Infrastructure spending.
New capacity commissioning.
Renewable energy utilisation.

These variables will largely determine the pace of earnings recovery across the industry.