The Indian cement sector has received a major boost as UBS has upgraded its outlook, signaling the end of a prolonged rough patch. Since July 2023, the investment bank had maintained a negative stance on the sector, citing weak demand and pricing pressures. However, with key improvements in market dynamics, UBS now expects a strong earnings upcycle to emerge in FY26.
Key Upgrades & Price Targets
UBS has revised its ratings on major cement producers, upgrading UltraTech Cement, Ambuja Cement, and Dalmia Bharat to Buy. The revised price targets reflect the improving outlook:
| Company | Current Price (₹) | New Rating | Old Rating | New Price Target (₹) | Old Price Target (₹) |
|---|---|---|---|---|---|
| UltraTech Cement | 10,979.00 | Buy | Neutral | 13,000.00 | 9,000.00 |
| Ambuja Cement | 514.80 | Buy | Sell | 620.00 | 475.00 |
| ACC | 1,915.35 | Buy | Buy | 2,250.00 | 2,450.00 |
| Dalmia Bharat | 1,749.50 | Buy | Sell | 2,100.00 | 2,160.00 |
This shift in sentiment suggests that the sector may have bottomed out, making it an attractive opportunity for investors.
What’s Driving This Positive Shift?
UBS cites multiple factors for its renewed optimism:
1. Demand Revival from Housing & Government Capex
The real estate sector is experiencing a housing upcycle, with increased demand for residential properties. Additionally, the revival in government capital expenditure (capex) on infrastructure projects is expected to drive cement demand further.
2. Structural Cost Savings
Cement companies have been focusing on operational efficiencies, including better logistics, power savings, and fuel cost management, which are expected to improve profit margins in the coming years.
3. Bottoming of Cement Prices
Cement prices saw an 8% decline in 9M FY25, but UBS believes the worst is over. Stabilizing prices, coupled with demand revival, should support earnings growth.
4. Sector Consolidation Led by UltraTech & Ambuja
With large players like UltraTech Cement and Ambuja Cement leading the consolidation, the industry is witnessing increased pricing power and stability. Smaller players are either getting acquired or facing competitive pressures, which benefits the top companies.
Strong Growth Expectations for FY25-27
UBS expects covered cement companies to deliver an EBITDA CAGR of 18-43% over FY25-27E. This growth is driven by both volume expansion and improving margins.
Disclaimer
This article is for informational purposes only and should not be considered as financial advice. Investors are advised to conduct their own research and consult with a qualified financial advisor before making any investment decisions. The stock market is subject to risks, and past performance does not guarantee future returns.
