MUMBAI – Domestic brokerage powerhouse Motilal Oswal Financial Services (MOFSL) has reiterated its “Sell” rating on India Cements Ltd (ICL), setting a revised target price of ₹370. The downgrade follows a turbulent third quarter (Q3FY26) for the South-based cement major, where a fragile recovery was derailed by a return to consolidated losses, sparking concerns about the sustainability of its turnaround under new majority owner UltraTech Cement.
The stock faced immediate downward pressure on the National Stock Exchange (NSE), sliding as much as 5.7% to ₹432 following the earnings disclosure, as the street weighed heavy operational costs against a backdrop of slowing regional demand.
The Q3 Earnings Trigger: Why Revenue Growth Failed to Save the Bottom Line
India Cements reported a consolidated net loss of ₹2.67 crore for the quarter ended December 31, 2025. This result was particularly jarring for investors given that the company had posted a small profit of ₹8.81 crore in the preceding quarter.
While revenue from operations grew 18.5% year-on-year (YoY) to ₹1,114.26 crore, the financials were marred by several operational headwinds:
- Margin Compression: Operating margins (excluding other income) sequentially dipped to 7.10% from 8.12% in Q1FY26.
- Cost Overruns: Despite UltraTech’s ongoing cost-reduction initiatives, total expenses outpaced revenue gains, fueled by a 23% spike in raw material costs.
- Interest & Depreciation Burden: Fixed costs remained a massive drag, with interest obligations of ₹24.10 crore and depreciation of ₹74.73 crore eating into the operational cash flow.
How Structural Risks and Valuation Overhang Led to the ₹370 Target
Motilal Oswal’s bearish stance is rooted in the belief that the stock’s current market price overestimates the speed of the UltraTech-led transformation. The brokerage highlighted three critical “red flags”:
- Stagnant Return Ratios: With a negative Return on Capital Employed (ROCE of -2.71%) and an anemic Return on Equity (ROE of 0.67%), analysts argue that ICL continues to destroy fundamental shareholder value.
- Unattractive Valuation: Trading at a significant premium to its historical EV/EBITDA multiples, the stock is seen as “priced for perfection.” Motilal Oswal notes that even with the proposed ₹20 billion capex for modernization, meaningful earnings accretion is unlikely before FY28.
- Market Share Loss: Despite being the largest producer in South India, ICL continues to lose ground to more efficient peers like Ramco Cements and Dalmia Bharat in key high-growth pockets of Andhra Pradesh and Tamil Nadu.
What Retailers Should Watch For: The UltraTech Integration
The primary hope for the stock remains the 75% ownership by UltraTech Cement, which is currently executing a massive “brand transition.” Approximately 31% of India Cements’ volume is already being sold under the UltraTech brand, with a target to hit 40% by March 2026.
However, Motilal Oswal warns that while brand synergy will eventually boost realizations, the “Sell” case at ₹370 holds firm due to the sheer volume of legacy debt and the high cost of upgrading aging kilns.
What’s Next for the Stock?
Market participants are now focusing on the Union Budget on February 1, where any boost to infrastructure and housing could provide temporary relief to cement stocks. However, for India Cements, the path to the ₹370 target seems paved by the persistent gap between its soaring stock price and struggling operational reality.