GST 2.0: Cement makers will have to balance price cuts with healthy margins

For a long time, cement has been taxed at one of the highest rates among essential building materials compared to sectors such as steel and other input materials, he said.

Lowering the rate to 18 percent corrects this anomaly and ensures parity with other core materials, Akhoury said.

Demand boost?

The rate cut may help push demand for affordable housing, as well as help increase sales of premium cement brands, experts said.

"Reduced prices of cement and higher purchasing power, especially increase the affordability of housing for middle and lower-income groups, spurring the demand for cement," said Dharmender Tuteja, CFO, Dalmia Bharat.

Lower prices will also improve the affordability of premium categories of cement, leading to a likely shift of demand towards these categories.

After a dull FY25 in terms of pricing, cement manufacturers have been hoping to raise prices this fiscal on higher demand from real estate and infrastructure verticals.

Ratings agency Crisil expects cement demand to grow by 6.5-7.5 percent in FY26, driven by real estate, particularly rural housing, while prices are seen growing by around 2-4 percent this year.

Analysts, however, have been more cautious, noting that demand is relatively inelastic and constitutes a smaller portion of construction costs, and the overall impact is likely to be limited as a result. This is despite incremental levels of construction cost decline as a result of the rate rationalisation.

"The GST Council's decision to reduce tax… will lower construction costs by around Rs 30 per bag. However, given that cement constitutes only 4-5 percent of overall construction costs and demand for cement has historically been price inelastic, this move is unlikely to have any meaningful impact on demand or pricing," Satyadeep Jain, lead analyst for cement at Ambit Capital, said.

What happens to prices?

Experts also say the industry may have to pass on the benefits to customers to avoid regulatory scrutiny, particularly from the Competition Commission of India (CCI). The industry has been in CCI's crosshairs over allegations of cartelisation and tender rigging.

"In the near term, the benefit of the GST rate reduction must be passed on to customers under anti-profiteering regulations. However, in the medium to long term, we believe that during periods of cost inflation, the industry’s ability to implement price hikes will improve and is likely to encounter lower resistance from channel partners," said Ravi Sodah, equity analyst, Elara Capital.

Some cement makers, who get benefits from respective state governments through the state GST (SGST) setup, may see these incentives getting affected, analysts said. However, demand and prices for cement are largely market-driven and the potential reduction in tax incentives may have a limited impact, they added.

"While there could be some impact on SGST-linked state incentives, particularly for certain regional players, we believe this tax change does not alter the structural dynamics of the industry. The current improvement in spreads and EBITDA per tonne remains cyclical rather than policy-driven," Jain said.