Cement Demand to Slow in Q2FY26 After Strong Start NH GST Cut to Ease Const Costs India Ratings

India Ratings and Research (Ind-Ra) has released its quarterly credit digest on the cement sector, highlighting demand-supply dynamics, realisations, costs, profitability, and credit trends. The report predicts cement demand to grow in single digits in Q2 FY26, after a robust 12% year-on-year volume growth in July 2025. The recent GST rate cut is seen as a structural positive, potentially reducing the tax burden by ₹30-35 per bag, which could lower construction costs Profitability improved in Q1 FY26 with EBITDA/tonne rising 30% year-on-year (₹250/tonne), driven by better realisations and lower costs. Seasonal weakness may trim margins in Q2 FY26, but profits are expected to.

Remain higher year-on-year. Tier-2 players in the fragmented southern market saw a sharp recovery, with EBITDA/tonne averaging ₹800 in Q1 FY26, up from below ₹500 a year earlier. However, structural financial challenges persist for many smaller companies Cement volumes grew 6%-7% YoY in 1QFY26, driven by a healthy recovery in rural demand, supported by real wage growth and increased infrastructure spending. The front loading of government capex supported cement demand, with the union government and 25 state governments’ capex rising 33% YoY in 1QFY26. Urban demand is lagging, with new housing activity sluggish due to declining new launches in 1QFY26.

The GST rate cut is seen as a structural positive for the cement sector, potentially reducing the tax component on cement by INR30-35/bag based on FY25-1QFY26 prices. Ind-Ra maintains its cement demand growth forecast at 5%-7% yoy, as the demand pick-up across segments may not be immediate. The Indian cement industry began FY26 on a highly robust note, buoyed by strong demand across infrastructure projects and residential housing developments. The first quarter saw a surge in cement consumption, driven by both government-led initiatives and private real estate activity. Roads, highways, metro rail expansions, and urban infrastructure projects contributed.

Significantly to this growth, reflecting the government’s sustained commitment to developing physical infrastructure. However, as India Ratings has noted, this momentum is expected to moderate in Q2FY26 due to multiple factors influencing demand patterns across the construction sector. While Q1 benefitted from catch-up construction work delayed in the previous fiscal year, Q2 is likely to experience seasonal slowdowns, including monsoon-related disruptions in several regions, which traditionally reduce on-site construction activities and, in turn, cement consumption The slowdown is also tied to the dynamics of the real estate sector. Residential housing.

Particularly in metropolitan and tier-1 cities, has faced a cooling-off period due to a combination of high interest rates, slower property sales, and delayed project launches. While affordable housing segments continue to see steady demand, mid-segment and luxury housing have witnessed more cautious buyer sentiment. Developers are consequently pacing project execution, leading to a temporary moderation in cement off-take. Private sector construction activity, which had contributed significantly to Q1 growth, is expected to decelerate, resulting in a more measured demand trajectory for the next quarter.

In this context, government policy interventions play a vital role in balancing demand pressures. The recent reduction in the Goods and Services Tax (GST) on cement is a critical measure intended to ease overall construction costs. By lowering the effective tax burden, the GST cut provides tangible relief to developers, contractors, and end-users, potentially stimulating demand in segments where cost sensitivity is high. The reduction also has broader economic implications, as more affordable construction can accelerate housing completion rates and encourage faster deployment of infrastructure projects. This aligns with the government’s goal of boosting economic activity through.

Increased capital expenditure, especially in sectors like roads, urban development, and public utilities Infrastructure remains a major pillar supporting cement demand despite short-term fluctuations. Government-backed projects, including the expansion of national highways, development of expressways, metro rail projects in urban centers, and rural connectivity programs, continue to require substantial cement volumes. Reports from the (Ministry of Road Transport & Highways) indicate that several projects scheduled for Q2FY26 are moving forward, providing a stable base demand for cement manufacturers. These projects are particularly crucial in mitigating the impact of slower residential construction.

Ensuring that the overall cement market does not face a sharp decline. Manufacturers with diverse portfolios covering both bulk cement and ready-mix concrete are better positioned to capitalize on such infrastructure-driven demand Operational strategy becomes essential for cement companies navigating this period. As demand moderates, manufacturers need to focus on inventory management, optimize production schedules, and adjust pricing strategies carefully. Maintaining margins while avoiding stockpiling excess inventory is a delicate balance, particularly in a market experiencing both seasonal slowdowns and shifts in sectoral demand. Companies with efficient.

Logistics and regional distribution networks have a competitive advantage, enabling them to supply areas with sustained demand while managing costs in regions experiencing a lull. Analysts from (India Ratings) suggest that strategic planning and cost discipline during such transitional periods are critical for sustaining profitability and market share Financial performance in Q2FY26 is expected to be influenced by both input costs and pricing dynamics. The GST cut provides partial relief, but manufacturers must also consider other operational expenses, including energy costs, freight, and labor. While cement prices have remained resilient due to the policy-driven.

Support and stable infrastructure demand, manufacturers may need to adopt flexible pricing strategies in regions where private sector demand softens. Balancing supply and demand through regional market analysis becomes crucial, as indiscriminate production can lead to inventory gluts and margin erosion. Market intelligence, coupled with agile operational adjustments, will be key determinants of performance in the coming quarter From an investment perspective, Q2FY26 presents an opportunity to monitor sectoral signals and policy impacts. Investors should watch cement off-take trends in urban housing, affordable housing initiatives, and ongoing government infrastructure.

Projects to gauge market momentum. The GST reduction, while supportive, is only one factor among many influencing the overall cement market. Long-term demand will continue to rely on broader economic growth, urbanization, and government spending patterns. Reports from and other industry analysts highlight that while short-term demand fluctuations are normal, the structural demand for cement in India remains robust, driven by the twin engines of housing development and infrastructure expansion Regional differences will also shape the Q2FY26 demand scenario. Northern and western states, with large ongoing infrastructure projects and industrial hubs, may.

Continue to exhibit strong cement consumption. Meanwhile, regions affected by heavy monsoon rains or slower urban development may see softer off-take. Manufacturers often calibrate their production and distribution strategies to align with these regional variations, ensuring that supply meets demand efficiently. The combination of policy support, infrastructure spending, and strategic distribution is expected to result in a balanced growth trajectory for cement manufacturers, despite a short-term slowdown in the overall market while Q2FY26 may witness a moderation in cement demand following a strong start to FY26, the sector’s long-term prospects remain solid.

The GST cut provides a key stimulus by reducing construction costs and improving affordability, supporting continued activity across residential and infrastructure projects. Manufacturers who adopt careful inventory management, flexible pricing, and region-specific strategies are likely to navigate the slowdown effectively. With government projects maintaining baseline demand and private sector construction gradually recovering, the cement industry is poised to sustain a resilient growth pattern. Stakeholders, including investors, developers, and manufacturers, should closely monitor policy updates, infrastructure project progress, and regional demand dynamics to make informed decisions, ensuring that the sector continues to thrive even in periods of temporary moderation.