Can UltraTech and Ambuja Overcome Cement Margin Pressure? Here’s What Nomura Says

Synopsis:- India’s cement sector is expected to post healthy volume growth in the June quarter, but a sharp rise in fuel, coal and freight costs is likely to weigh on profitability. While recent price hikes should provide some relief, they may not be enough to fully offset the higher input costs. Nomura believes UltraTech Cement and Ambuja Cement are better positioned to weather the cost pressures, while the rest of the sector is expected to face a steeper hit to margins. 

The cement sector is heading into its Q1 FY27 earnings season with a familiar but sharpening tension: demand is holding up, prices have inched higher, and yet profitability is still expected to shrink. 

Nomura projects the industry will post 6 to 7 percent year-on-year organic volume growth for the June quarter, with Shree Cement leading at 15 percent. Blended trade prices rose about 3 percent sequentially to roughly Rs. 326 per bag, helped by hikes of around Rs. 10 per bag concentrated in the West and North regions. On paper, that combination, rising volumes plus rising prices, should read as a strong quarter. It isn’t, because the cost side of the ledger moved faster than the pricing side.

Why Margins Are Shrinking Despite Price Hikes

The gap between what companies charged and what they paid to produce cement widened for reasons largely outside management’s control. Power and fuel account for roughly 30 percent of total cement manufacturing costs, and imported pet coke, the primary fuel input for many plants, jumped to $155 to $160 per tonne in April, up from a baseline of $115 to $120 dollars, a move traced back to the West Asia crisis. 

International thermal coal added roughly 20 percent over the same stretch, squeezing companies with less flexibility to switch fuel sources. Freight and logistics, which make up 25 to 27 percent of cement company expenditure, took a separate hit in May when a government-mandated diesel price increase of close to Rs. 7.5 per litre pushed transportation costs into high single-digit growth. 

Nomura’s coverage universe is expected to show operating cost per tonne rising 4 percent sequentially, translating into an average EBITDA per tonne decline of roughly Rs. 50 across the industry. Industry-wide, Nomura pegs coverage revenue growth at around 8 percent year-on-year alongside volume growth near 9 percent, but expects EBITDA to fall about 4 percent and net profit to drop roughly 11 percent, a clear signal that this is a cost-driven margin story rather than a demand problem.

UltraTech and Ambuja: Why Nomura Picked Them

Ambuja Cement stands out as the one major name Nomura expects to buck the trend entirely, forecasting a sequential improvement in EBITDA per tonne even as peers post declines. The brokerage credits this to the company’s ongoing capacity integration and internal efficiency gains rather than any pricing advantage specific to Ambuja. 

Trading recently near Rs. 430 with a trailing P/E around 20, the stock is not cheap relative to the broader market, but the earnings resilience Nomura is pricing in would justify some premium if the integration benefits show up as expected in the results.

UltraTech Cement, India’s largest cement producer with roughly 28 percent of domestic grey cement capacity, gets the backing for a different reason: scale and regional mix. The company’s exposure to the North and West markets, where pricing held up better than in the South and East, gives it more room to pass through cost increases without losing volume. 

UltraTech shares were trading in the Rs. 11,600 to 12,800 range through late June and early July, with P/E estimates ranging from roughly 45 to 50, reflecting the market’s willingness to pay up for the company’s balance sheet strength and consistent execution history rather than any near-term margin outperformance.

What the Regional Divergence Means for Stock Selection

The pricing data buried in Nomura’s note is arguably more useful for stock picking than the headline volume numbers. Companies with concentrated exposure to the East and South, where price hikes lagged, are absorbing the same input cost shock as their North and West-focused peers without the pricing cushion to offset it. 

Retail investors comparing cement stocks purely on volume growth, where Shree Cement’s 15 percent figure looks the most impressive, should weigh that against regional pricing power, since strong volume with weak regional pricing still compresses margins. Shree Cement’s own P/E sits near 57, among the richer multiples in the sector, which raises the bar for the volume story to translate into earnings the market hasn’t already priced in.

The Case for Patience Into Q2

The one genuinely constructive data point in this update is that pet coke prices had already eased to around $130 per tonne by June, down from the April peak. That correction typically shows up in reported numbers with a lag of a quarter or two, meaning any Q1 margin damage is unlikely to be the trough for the sector. For retail investors, that argues against reading a weak Q1 print in isolation as a reason to exit cement holdings, and instead treating it as an expected, cost-driven dip with a visible catalyst for recovery already in motion. The companies best positioned to benefit from that recovery are the ones Nomura has already flagged: those with either operational efficiency levers of their own, like Ambuja, or enough regional pricing power and scale to protect margins until input costs normalise, like UltraTech.

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