04 - 07 - 2026

India cement sector’s profitability to fall in Q1

India’s cement sector is likely to witness a decline in profitability in the first quarter of this financial year (1QFY27), impacted by a rise in key input costs such as pet coke, coal, diesel, and packing material.

After recovering to about ₹950/mt in FY26 (FY25: INR820/mt, FY24: INR950/mt), supported by firmer realisations, favourable power, and fuel prices, cost headwinds are expected to weigh on profitability in 1QFY27, according to an India Ratings and Research (Ind-Ra) report.

A full pass-through of costs will require a high single-digit price increase, which is unlikely given the demand-supply balance. As a result, EBITDA/mt could see a double-digit decline during the quarter.

However, with the softening in crude and pet coke prices in the past month, the industry could see some respite in production cost over the next couple of quarters.

After healthy 8 per cent year-on-year (YoY) growth in FY26, Ind-Ra expects cement demand to grow moderately, in a mid-single digit in 1QFY27 (1QFY26: 5%-6 per cent YoY).

Listed players saw volume growth of around 6 per cent YoY in 4QFY26. Despite inflationary concerns, the core industry data indicate that cement demand was off to a good start in FY27, with production volumes growing 9 per cent YoY in April 2026 (April 2025: 6 per cent YoY). However, the growth rate could slow down in May and June 2026, led by a combination of weather factors (heatwave, rains in different parts of the country) and higher inflation.

After 1 per cent YoY growth in 4QFY26, cement prices have risen recently, as the increase in fuel costs emanating from the West Asia crisis has increased production costs for cement companies. Power and fuel together account for around 30 per cent of the total cement costs, making profitability highly sensitive to movements in pet coke and coal prices.

Surging pet coke prices

Global pet coke prices surged to about $160/mt in April 2026 (February 2026: $115/mt), while international thermal coal prices also increased around 20 per cent over the period, materially steepening the industry cost curve for 1QFY27.

However, pet coke prices have eased to around $130/mt in June 2026, which should provide some respite to the industry during 2QFY27.

Freight is another key cost driver, accounting for 25-27 per cent and closely linked to diesel prices. The government announced an increase of close to ₹7.5 per litre in diesel prices in May 2026, marking a high single-digit increase.

The cement sector saw capacity additions of around 50 mnt in FY26, reflecting the industry’s aggressive expansion cycle. This was 75-80 per cent of the announced additions for the year. These additions lowered industry‑wide capacity utilisation by around 100bp YoY to 70 per cent in FY26. Utilisations could be marginally lower YoY in 1QFY27, given the capacity additions in recent months. Sequentially, utilisations typically reduce in 1Q, as 4Q is the seasonally strongest quarter.

The recovery in realisations during FY26, particular in the initial months, led to a recovery in the EBITDA/mt of Tier-II players, reaffirming that pricing remains critical for restoring credit strength for these entities.

However, despite the temporary relief, the structural financial profile of Tier‑II producers remains weak, characterised by higher leverage, limited geographic diversification, and lower operating buffers. At the same time, tighter balance sheet headroom and reduced liquidity buffers further constrain their ability to absorb sustained cost pressures or undertake strategic adjustments.