Cement margins in FY26: Crisil sees 18-20% rebound

Profitability outlook turns into a key FY26 variable

India’s cement industry is entering FY26 with demand indicators improving, but with profitability still sensitive to costs and pricing power. Crisil Intelligence and Crisil Ratings have outlined expectations that place operating margins and operating profit per tonne at the centre of the sector narrative. One projection highlights margin pressure from rising energy costs, while other updates point to a recovery supported by better realisations, stable overall costs, and premiumisation.

The common thread is clear: volumes are expected to grow, but the extent to which manufacturers can protect profitability will depend on input cost behaviour and how much of the cost stack can be offset through pricing and product mix.

Crisil Intelligence flags margin squeeze from higher energy costs

Crisil Intelligence said operating margins for cement companies are projected to fall by 150-200 basis points year-on-year to 16-18 percent. This would reverse last year’s expansion of 260-280 basis points. The report attributed the expected squeeze to rising energy costs eroding margins.

Even where pricing gains and stable demand may support revenues, the agency noted they are unlikely to fully offset the increase in input costs. It also pointed to premiumisation trends and higher ex-GST prices as positives for realisations, but not sufficient to restore margins to earlier levels.

A second set of projections points to a margin recovery

In a separate Crisil Intelligence assessment dated Dec 9 (PTI), the agency projected an improvement in profitability this fiscal. It said industry margins could grow by 250-300 basis points, aided by higher realisation, stable costs, a GST cut, premiumisation, and volume growth. The report added that overall costs are expected to be stable, resulting in an expansion in operating margin to 18-20 percent from 16 percent last fiscal.

Crisil also said raw material costs may remain elevated due to higher limestone prices, but still expects overall expenditure stability to support margins. The two projections together underline that the path of energy and input costs versus pricing and mix will determine where margins finally settle.

Demand remains resilient, with a stronger second half

Across the reports, demand expectations are supportive. Crisil projected cement demand growth of 6.5-7.5 percent in FY26, compared with around 5 percent in FY25. It said demand is expected to remain resilient, supported by infrastructure development and steady industrial and commercial activity.

Crisil Intelligence also projected volume growth of 8-9 percent in the second half of FY26, driven by pent-up demand and better liquidity. It noted that the first half saw a modest 5 percent year-on-year rise in demand, while the second half is expected to accelerate.

Realisations: strong first half, slower second half

Realisations are expected to play a meaningful role in cushioning profitability. Crisil Intelligence said 14 manufacturers saw a 5 percent increase in realisations in the first half of the fiscal. However, it expects the momentum to slow in the second half, with realisations growing a modest 0-2 percent.

As a result, full-year average improvement in realisations is expected at 2.5-3.5 percent. The agency linked the realisation trend to volume-led improvement and premiumisation, even as selling prices remain steady and input costs stay broadly stable.

Operating profit per tonne expected to move above the decadal average

Crisil Ratings said the cement industry could return to its 10-year average profitability levels in FY26. It projected that operating profitability will rise by about ₹100 per tonne, slightly surpassing the sector’s decadal average.

As per the report and comments attributed to Anand Kulkarni, Director, Crisil Ratings, operating profitability is expected at ₹975-1,000 per tonne in FY26, compared with ₹880 per tonne in FY25 and the 10-year average of ₹965 per tonne.

Costs: green energy savings versus raw material inflation

On costs, Crisil highlighted both supports and pressures. It said a rising share of competitively sourced green energy in the power mix can create savings in power and fuel costs. Those savings are expected to offset an estimated ₹20-30 per tonne increase in raw material prices.

The raw material cost rise is linked to higher costs of limestone, fly ash, and slag. In parallel, other Crisil commentary has flagged rising energy costs as a direct margin headwind, showing why the energy line item remains critical to FY26 profitability outcomes.

Rural housing emerges as an important demand driver

Crisil Ratings said that after a muted FY25, the sector is expected to benefit from rural housing growth and controlled input costs, supporting a recovery in margins and financial stability. It added that demand strengthened in the second half of FY25, helping set the base for a stronger FY26.

This emphasis on housing adds context to why demand can remain firm even while cost pressures fluctuate. For manufacturers, a steady demand base helps utilisation and supports realisation improvement, but does not automatically translate into margin protection if energy inputs rise sharply.

Key numbers at a glance

Market impact: what investors typically watch next

For listed cement makers, the swing factor will likely be the spread between realised prices and delivered cost inflation, especially energy. The reports indicate that volume growth and premiumisation can lift realisations, but a sharp rise in energy costs can still compress operating margins.

The divergence in margin outcomes across Crisil commentary also highlights timing sensitivity. If energy costs rise faster than expected, operating margins may track closer to the 16-18 percent band. If costs remain stable while realisations improve, margins could land closer to the 18-20 percent range.

Analysis: why FY26 may look better on volumes than on margins

Crisil’s demand expectations of 6.5-7.5 percent growth, plus the projected 8-9 percent volume growth in H2 FY26, suggest the industry is moving into a higher activity phase. That typically supports fixed-cost absorption and stabilises profitability.

But the same set of reports also shows that margins are not solely a function of demand. Energy costs, raw material inflation, and the pace of realisation improvement can change the outcome materially. Premiumisation and higher ex-GST prices are supportive, but Crisil has also stated they may not be enough to fully restore margins if input costs rise.

Conclusion

Crisil’s reports place India’s cement sector on a stronger demand footing in FY26, with expected growth of 6.5-7.5 percent and a faster second half. Profitability, however, remains exposed to energy and input-cost movements, with projections ranging from margin pressure at 16-18 percent to a recovery toward 18-20 percent.

The next signals for the market will come from the trajectory of energy costs, the sustainability of realisation gains after a strong first half, and whether stable overall costs can keep operating profitability near ₹975-1,000 per tonne.