Nomura downgrades Shree Cement, ACC, Nuvoco, Dalmia Bharat; here's why

Nomura on cement players: Nomura, a Tokyo, Japan-based brokerage, has adjusted its ratings and target prices for key players in the Indian cement industry. 

 

The brokerage downgraded Shree Cement from 'Buy' to 'Neutral,' setting a target price of Rs 28,000. Similarly, ACC and Nuvoco have been downgraded from 'Neutral' to 'Reduce,' with target prices of Rs 1,920 and Rs 330, respectively. Dalmia Bharat retains its 'Reduce' rating, with a target price of Rs 1,680.

 

In contrast, Nomura maintained its 'Buy' rating on UltraTech Cement, Ambuja Cement, and Ramco Cements, with target prices of Rs 12,800, Rs 690, and Rs 1,060, respectively, indicating potential upsides of 10 per cent, 29 per cent, and 11 per cent.

 

 

“We roll forward to FY27F and maintain our ‘Buy’ rating on UltraTech Cement, Ambuja Cement, and Ramco Cements with target prices of Rs 12,800, Rs 690, and Rs 1,060, respectively, implying 10 per cent, 29 per cent, and 11 per cent upside. We downgrade Shree Cement from ‘Buy’ to ‘Neutral’ and ACC and Nuvoco from ‘Neutral’ to ‘Reduce’ with target prices of Rs 28,000, Rs 1,920, and Rs 330, respectively. We maintain ‘Reduce’ on Dalmia Bharat with a TP of Rs 1,680,” said Jashandeep Singh Chadha, research analyst at Nomura.

 

Nomura analysts project a 6 per cent year-on-year (Y-o-Y) volume growth for the Indian cement industry in FY26F, compared to an estimated 3 per cent in FY25F.  However, they hold a negative view on the industry's pricing outlook, citing pricing indiscipline despite ongoing consolidation. 

 

Meanwhile, here are top factors behind this outlook:

 

Demand recovery expected in FY26F

 

Nomura analysts project a 5-6 per cent year-on-year (Y-o-Y) volume growth for the Indian cement industry over FY26-27F. The industry saw disappointing volume growth of just 2 per cent Y-o-Y in H1FY25, compared to 12 per cent Y-o-Y in H1FY24. While demand moderation was anticipated due to a slowdown in new infrastructure projects during the general elections year, limited fund releases by the government further impacted growth.

 

“FY25F should be considered an anomaly as there are no structural issues with cement demand,” analysts said. They expect demand to recover in FY26F as government ministries and welfare schemes release funds. Affordable housing and infrastructure, which contribute 9 per cent and 25 per cent of total cement demand respectively, are anticipated to be the primary growth drivers. 

 

Consequently, volume growth estimates for FY25F were revised down to 3 per cent from 6 per cent, but the FY26F estimate remains at 6 per cent Y-o-Y. Analysts forecast a 6 per cent compound annual growth rate (CAGR) in demand over FY25-27F, while cautioning that weak rural demand and slowing government capital expenditure could pose downside risks.

 

Cement prices to stay weak during consolidation

 

Cement trade prices have declined 8 per cent Y-o-Y during the first nine months of FY25F, primarily due to weak demand, analysts noted. Channel checks conducted in January 2025 suggest that prices remained flat quarter-on-quarter (Q-o-Q) in Q3FY25, with a 1 per cent decline expected in H2FY25F compared to H1FY25.

 

“We expect cement trade prices to remain weak largely due to market share tussles amid the ongoing consolidation phase in the industry,” analysts said. A strong negative correlation (-0.8) between volume growth and pricing was observed over FY21-24. For FY26F, no major price improvements are expected, with steep hikes unlikely to sustain due to pricing indiscipline as companies attempt to increase utilisation. 

 

Thus, analysts have lowered their FY26F pan-India cement trade price estimate 8 per cent to Rs 353 per bag, projecting only a 2-3 per cent Y-o-Y price increase, aligned with the Wholesale Price Index (WPI).

 

Focus on cost-saving measures amid limited fuel cost benefits

 

Nomura highlighted that average FY25 year-to-date prices for imported pet coke and thermal coal are down 18 per cent and 8 per cent Y-o-Y, respectively. While spot prices remain well below FY23 highs, the industry has already benefited from low-cost imported fuel. Since FY23, power and fuel costs per tonne (P&F cost/t) have declined at a 14 per cent CAGR (FY23-H1FY25).

 

However, fuel prices appear to have stabilised, and analysts expect limited further moderation in FY26F. “We remain bullish on companies actively pursuing sustainable cost-saving measures, such as UltraTech and Ambuja,” analysts said. For covered companies, unitary Ebitda expansion of Rs 150-200 per tonne Y-o-Y is anticipated in FY26F.

 

3QFY25F preview

 

Industry volumes are expected to grow 5-6 per cent Y-o-Y in 3QFY25F, driven by demand recovery in December 2024. Analysts estimate 8-9 per cent Y-o-Y volume growth for covered companies, with Ramco Cements projected to achieve the highest growth at 20 per cent.

 

Also Read: Q3 results preview: Cement firms' earnings, profitability likely to decline

 

Recent channel checks indicate pan-India prices improved by Rs 2 per bag month-on-month (M-o-M) in January 2025, though prices remained flat Q-o-Q during Q3. Average cement spreads improved by Rs 60-70 per tonne in the quarter, primarily due to lower fuel costs. 

 

Analysts expect the benefit of lower imported fuel costs to be evident in Q4FY25F, alongside better fixed-cost absorption. Overall, an Rs 100-150 per tonne Q-o-Q improvement in Ebitda per tonne is anticipated for the industry.