Indian cement sector shows early capital discipline signs says Jefferies

Investing.com -- India's cement sector is displaying initial signs of capital discipline as leading players moderate expansion plans to address weak capacity utilisation, according to Jefferies.

Shree Cement has reduced its capital expenditure to approximately 15 billion rupees in fiscal years 2026 and 2027, down from 30 billion rupees previously, prioritising capacity utilisation improvement. Ambuja Cements, following its merger and acquisition phase, is slowing expansion beyond fiscal 2027. Ambuja management recently indicated a 30% to 35% reduction in capital expenditure, pushing out its 140 million tonnes per annum capacity target amid project delays and underperformance of acquired assets.

For the past decade, cement companies added capacity to defend regional market share rather than optimise returns. This approach led supply to outpace demand, keeping industry earnings before interest, taxes, depreciation and amortisation per tonne largely range-bound. Capacity utilisation in southern India stands at 60% to 65%, compared with 70% to 72% nationally.

UltraTech Cement recommended an 85% dividend payout for fiscal 2026, supported by operating cash flows exceeding 150 billion rupees and consolidated net profit surpassing 80 billion rupees for the first time.

The top five cement producers now control 64% of India's cement capacity, up from 46% in March 2015. UltraTech leads with approximately 200 million tonnes per annum capacity and 28% market share. Ambuja holds 15% to 16% share, while Shree Cement maintains 10% share at 69 million tonnes per annum capacity.

Jefferies named UltraTech Cement and JK Cement as top picks.

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