HSBC Bets Big on Indian Cement Sector: 28% Upside Potential for Top Picks
Overview
HSBC forecasts a strong rebound for the Indian cement sector in early 2026, driven by expected price hikes and sector consolidation. The brokerage identifies UltraTech Cement, Ambuja Cements, and Dalmia Bharat as top 'Buy' recommendations, projecting up to 28% upside potential, while maintaining 'Hold' on Shree Cements and ACC.
Stocks Mentioned
Cement Sector Poised for Revival, HSBC Says
Global investment bank HSBC sees a significant turnaround for India's cement sector, anticipating a rebound in early 2026 after a prolonged period of weak pricing and investor underperformance. The brokerage firm expects prices to rise between January and March 2026, noting that market share consolidation among the top five players provides a structural advantage not seen in previous cycles.
Rising Costs Met by Demand Growth
The industry faces cost pressures, including a 4% increase in imported pet coke and a 9% rise in domestic pet coke, exacerbated by a weaker Indian Rupee. However, HSBC forecasts a 5-6% growth in demand, which should sufficiently offset these expenses through operational leverage. The East and South regions are identified as having the highest potential for recovery, with prices in these areas having dropped the most in 2025, offering substantial room for margin expansion with new price hikes planned for Q1CY26.
Top Picks: UltraTech, Ambuja, Dalmia
HSBC has placed 'Buy' ratings on three key players. UltraTech Cement is the top choice with a target price of ₹14,900, a potential 25.2% upside. Its massive scale and efficiency are key advantages, with expansion and acquisitions driving market share growth. The company's focus on green energy and waste heat recovery systems is seen as a core cost-leadership strategy.
Ambuja Cements is recommended with a target price of ₹720, offering a 27.3% upside over two years. Rapid capacity expansion and cost reduction efforts are highlighted. The planned merger with ACC and Orient Cement is a significant structural benefit, simplifying its corporate structure and removing a 'complexity discount'. New clinker kilns are expected to provide a cost advantage.
Dalmia Bharat has a target price of ₹2,740, projecting a 27.6% upside. It is expected to benefit most from price recoveries in the East and South. The company is noted for meeting expansion goals while maintaining a healthy balance sheet, making it a high-conviction play on regional price mean-reversion.
Cautious Outlook for Select Firms
Despite the positive outlook, HSBC maintains a 'Hold' rating on Shree Cements due to expensive valuations and heavy reliance on the competitive North Indian market. Similarly, ACC retains a 'Hold' rating, with its individual importance diminished post-merger activities and facing operational challenges from clinker plant shutdowns.
Consolidation to Support Pricing
Concerns about significant capacity additions are addressed, with HSBC indicating that much of the new capacity will ramp up from the second half of FY27. This timing should allow for cement price hikes to take effect in the first half of 2026. While Q3FY26 might see temporary price declines, the firm views this as a transient phase. Increased industry consolidation is expected to enable price hikes to flow through, as larger players now prioritize value over volume to restore margins. HSBC believes the risk-reward ratio is favorable for sector leaders as demand enters its infrastructure-heavy window.
