Indian Cement Stocks Become Dearer Than Some Global Peers

The reading is higher than the sector’s long-term average. The problem is that stocks of Indian cement makers have elevated Valuation Multiples Despite Subdued Earnings.

In Fact, The Indian Cement Sector Has Seen Large Downgrades to Consensus Ebitda and Earnings Per Share Estimates Every year for the Past 10 years, Says Kotak Institutional Equites.

So, What is Keeping Valuations Lofty? Two key narrants see to fuel optimism.

A Pick-up in Government Speaking on Infrastructure and Allied Activities in FY26 after a MUmed FY25 Due to State and General Elections Buoy Cement Demand. Additional, the home building segment is also likely to push demand after real estate launches was weak in fy25 due to delayed approvals.

Secondly, pricing discipline, which has been absent lately amid an intensifying fight for market share, will return. Consolidation in the sector, with larger companies Acquiring Smaller Ones, is said to be at its fag end now. So, as demand outpaces supply, cement prices would recover and thus, realizations and profits.

Latest Company Management Commentaries are upbeat, with demand and pricing outlook poised to pick up in the seasonally strong second-half of the year. But the dent in price has been servere.

Price Drop

According to India Rating and Research, Cement Pries Fell 5% -6% in FY25, the sharpest annual drop in the past 20 years. The most pronounced price contraction was in South India due to oversupply, followed by the Eastern Region, It Said in a Note Dated 17 June.

So, Repairing Realizations May Not Be Easy If Demand Fails to Improve as ANTICPATED AMID The Recent Spate of Capacity of Capacity Adhyth. This would also keep the sector’s utilization levels cappeded.

The Return Ratios Have Been Poor. Sector Such as Cement with a low fixed asset turnover ratio (long-term average of 1x) and mediocre financial return with return on right Equity/Weighted Average Cost of Capital Should not have a very high multiple, as per kotak.

On a one-yar forward Ev/Ebitda Basis, The Sector Trades at a Multiple of 21x, Higher than the long-term average of 16x. Clearly, Unless One of these narrants materials and leads to earnings upgrades, valuations do’t see seem justified.