Cement sector faces muted Q1 FY27 as heat, water scarcity hit demand: Ashika's Jyoti Gupta

India's cement industry is bracing for a softer-than-expected first quarter of FY27, with extended summer heat and water scarcity disrupting construction activity despite a delayed monsoon, according to Jyoti Gupta, Senior Research Analyst at Ashika Institutional Equities.

Demand growth slows sharply

Speaking to ET Now, Gupta clarified that while a delayed monsoon should have theoretically extended the construction window, the reality played out differently. Severe water scarcity caused by extended heat actually disrupted what could have been a construction boom in the first quarter. As a result, demand that peaked in the fourth quarter of FY26 is expected to dip on a quarter-on-quarter basis.

Gupta projects industry volume growth of just 4% to 5% for the quarter, a notable slowdown compared to the 7% to 8% growth seen in the same period last year. She attributed the slump to a combination of factors: reduced working hours due to extreme heat, scarcity of water needed for construction, and ongoing concerns around cement bag availability, all of which collectively suppressed demand-led construction activity.

Margins under pressure, leadership holds steady

Despite the demand softness, Gupta expects sector leadership to remain concentrated among the established large-cap players, including UltraTech, Ambuja, Shree Cement, and JK Cement, even as pan-India demand struggles broadly.

On profitability, Gupta painted a cautious picture. She noted that elevated bag costs continue to weigh on margins, with some relief possible only in the second quarter. The full impact of power and fuel cost pressures is also expected to surface more prominently in Q2 FY27 rather than the current quarter. Having recorded EBITDA per tonne of just under ₹900 in Q4 FY26, Gupta forecasts a further sequential decline in Q1, translating to an estimated year-on-year drop of 25% to 30% in industry-wide EBITDA per tonne.

No price hikes in sight as monsoon sets in

On pricing, Gupta said the industry closed FY26 with realisations of approximately ₹4,500 per tonne, but the past three months have shown a slight decline rather than improvement. With monsoons now firmly underway, she does not anticipate any near-term price hikes unless demand data shifts materially. She has factored in a 3% to 4% decline in pricing realisation for the current quarter, with similar pressure likely to persist into the next quarter depending on how fuel costs evolve.

Second half recovery expected

Despite the muted first half, Gupta remains optimistic about the back half of FY27. She expects demand and realisations to pick up meaningfully after the festive season, particularly around Diwali and Chhath Puja. For the full year, Gupta projects industry volume growth of around 8% to 8.5%, with realisations expected to remain broadly stable, potentially improving by 1% to 2% across the industry.

Consolidation largely complete

Addressing the wave of consolidation that has reshaped the cement sector in recent years, Gupta said the process is roughly 75% to 80% complete. She does not anticipate any major new acquisitions or further consolidation activity within the current fiscal year, suggesting any fresh deal-making is more likely to materialise in FY28.

Top picks

Despite the near-term headwinds, Gupta's preferred picks in the sector remain Ambuja Cements in the large-cap space and Ramco Cements among midcaps, reflecting confidence in their ability to navigate the current margin pressure and capitalise on the anticipated second-half recovery.