Nomura Forecasts Stronger Cement Volume Growth in FY26, Favours Industry Leaders

Nomura expects the Indian cement industry to experience stronger volume growth in FY26 compared to FY25 but believes that only companies focusing on cost-efficiency will see an improvement in profit margins. Based on this outlook, the brokerage has favored industry leaders in the sector.

Nomura maintained its 'buy' ratings for UltraTech (target price: ₹12,800), Ambuja Cements (target price: ₹690), and Ramco Cements (target price: ₹1,060). These companies have demonstrated robust cost management strategies, making them better positioned to handle external pressures such as input cost inflation and pricing fluctuations. Nomura highlighted their focus on operational efficiency, capacity expansion, and sustainable energy initiatives as key factors supporting their positive outlook.

However, it downgraded ACC and Nuvoco Vistas from 'neutral' to 'reduce' and shifted its rating for Shree Cement from 'buy' to 'neutral.' Additionally, Dalmia Bharat retained its 'reduce' rating. These downgrades reflect concerns over weaker margin performance and limited visibility on sustainable cost-reduction measures. Nomura indicated that these companies may face challenges due to their slower adoption of strategies aimed at reducing operational costs and improving efficiency.

Looking forward, Nomura projects a 6% volume growth for the cement industry in FY26, a notable increase from its 3% estimate for FY25. The brokerage attributed this expected growth to increased demand from infrastructure projects and government-led housing schemes. Additionally, a recovery in rural housing demand, supported by improved monsoons and better agricultural output, is likely to contribute to stronger cement consumption.

Despite the anticipated volume growth, Nomura remains cautious about the pricing environment, predicting that trade prices will stay stagnant due to competitive pressures and ongoing industry consolidation. "Pricing discipline is likely to be weak, as market players compete for a larger share amid the consolidation phase," the brokerage noted. This pricing pressure may erode profitability for companies that fail to mitigate costs through efficiency measures.

With fuel cost reductions having largely run their course, Nomura favors companies adopting long-term cost-saving initiatives, such as lowering thermal energy consumption and increasing the use of green energy. Initiatives like waste heat recovery systems, higher use of alternative fuels, and reliance on renewable energy sources have become crucial differentiators. Companies like UltraTech and Ambuja have shown strong progress in these areas, giving them an advantage in maintaining margins even in a tough pricing environment.

Nomura also noted that as the industry consolidates, the competition among market leaders is likely to intensify, which could lead to further mergers, acquisitions, or strategic alliances. However, it warned that without significant cost improvements, some mid-tier players may struggle to stay competitive in the evolving landscape.

Overall, Nomura's recommendations underscore the importance of sustainability-focused initiatives and disciplined cost management in navigating the challenges posed by volatile input costs and market competition.