Aggressive capacity additions, widening regional imbalances and persistently weak pricing are emerging as key headwinds, setting the stage for 2026 to be a year of transition rather than a swift turnaround. The first question, then, is what is likely to hold back growth?
Capacity races ahead of utilisation
Domestic brokerage Prabhudas Lilladher highlights a widening gap between capacity and demand over the next few years. Over the past five years, cement capacity expanded at a compound annual growth rate of 4.9%, while demand grew faster at 5.6%. This supported a steady improvement in industry utilisation from a trough of around 63% in FY21 to about 68% in FY25.However, the next phase looks different. Cement capacity is expected to grow sharply at around 7.7% CAGR between FY25 and FY28E, reaching nearly 808 million tonnes per annum. Demand, while robust, is projected to grow at a similar but slightly lower pace of 7.6% CAGR to around 550 mtpa by FY28E. As a result, overall industry utilisation is expected to improve only modestly to around 70% by FY27E, with limited scope to move meaningfully beyond that level.
The brokerage cautions that several cement companies have announced capacity additions in the recent past, which could keep utilisation capped, especially in regions where demand recovery is slower. While the long term demand outlook remains buoyant, the industry may have to live with excess capacity in the medium term.
Regional fault lines widen
The utilisation picture is far from uniform across India. Analysts expect North and Western India to bear the brunt of upcoming capacity additions if demand remains muted for longer. In these regions, capacity utilisation could drop by as much as 800 basis points. Central India may see a decline of around 600 basis points.In contrast, Eastern and Southern India are expected to fare better. Utilisation in the East is projected to gradually improve by around 400 basis points, while the South could see a modest increase of about 160 basis points over time. This divergence underscores why pan India scale and operational efficiency are becoming increasingly critical. According to the brokerage, sector leaders with a national footprint, efficient operations and a clear growth focus are best placed to navigate this uneven landscape.
Pricing remains the weak link
While demand drivers are firmly in place, pricing remains the sector’s biggest near term challenge. Elara Capital warns that, at current prices, the cement industry faces the risk of missing consensus EBITDA estimates by around 13%. Sequential profit recovery is also expected to be weaker than historical averages, largely due to a sharp fall in non trade segment prices and intensifying competition.
December data underscores this pressure. All India average retail cement prices declined by around Rs 1 per 50 kg bag month on month to approximately Rs 334. South and West India saw the steepest declines of about Rs 2 per bag each, while East India showed a mixed trend, with West Bengal being the only market to report a price increase of around Rs 5 per bag. Prices in Central and North India were largely stable.
Seasonal factors have further weighed on demand momentum. Winter conditions, the marriage season, pollution related construction curbs in Delhi NCR and higher agricultural activity in rural areas constrained construction activity in several regions. Although some pockets saw an improvement in demand compared with November, pricing traction has remained limited.
Hike attempts, limited absorption
Cement companies are planning price hike attempts of around Rs 10 to Rs 40 per bag in January. However, Elara Capital expects actual realisations to improve by only Rs 5 to Rs 10 per bag, given the competitive intensity. Meaningful absorption of price hikes is more likely in April, once annual volume pressures ease and companies shift focus from volumes to profitability.
On a quarterly basis, pan India average cement prices in Q3 FY26 were up around 2% year on year but down about 2% quarter on quarter. South India recorded the sharpest quarterly correction, followed by East India. Prices in North and West India eased modestly, while Central India remained largely flat.
Long term play intact?
Despite near term utilisation challenges, the demand pipeline remains strong. Large public and private infrastructure initiatives are expected to be key drivers of cement consumption in the coming years.
Smart and sustainable city projects aimed at improving urban infrastructure across 100 cities continue to support steady demand, with 17 cities having completed all their projects. Road infrastructure remains another major pillar, led by the Bharatmala Pariyojana, which targets the development of 34,800 km of national highways. In addition, road projects worth Rs 600 billion have been announced in Madhya Pradesh alone, including greenfield highways and economic corridors.
Airport infrastructure and regional connectivity plans target an increase in operational airports to 300 by 2047, backed by capacity expansion to support nearly eight times growth in passenger traffic. High speed rail and the rapid rollout of Vande Bharat Express services further add to medium term cement demand visibility.
Brokerages remain selective, favouring large, pan India players with efficient operations and disciplined capital allocation. As demand remains buoyant and limestone availability gradually tightens over time, the gap between capacity and demand is expected to narrow beyond FY28E. Until then, cement stocks may continue to trade cautiously, with performance hinging more on execution, pricing discipline and regional strategy than on headline demand growth alone.
In a recent report, Prabhudas Lilladher initiated coverage on the cement sector with a positive stance, issuing bullish calls on three stocks, JK Cement with an Accumulate rating, and JK Lakshmi Cement and JSW Cement with Buy recommendations.
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