India’s building materials sector faces a widening disconnect between rising construction costs and a near-standstill in capital market, private equity and merger activity, creating a difficult operating environment for manufacturers and developers, according to a monthly sector tracker by Equirus Capital.
The report reveals construction costs are projected to rise 3–5 per cent in 2026, driven primarily by 5–6 per cent labour inflation linked to new social security and healthcare codes, even as cement and steel prices had softened 1–4 per cent in 2025. At the same time, aluminium and copper prices have risen 8–10 per cent, adding fresh pressure on overall project economics. Developers that invest in technology and formalisation are likely to be better placed to manage these cost pressures amid a tightening skilled labour market.
Cement prices are expected to see an upward revision by late March or early April, with southern markets likely to witness increases of Rs 30–40 per bag. This is attributed to escalating crude-linked input costs and steady demand from infrastructure and rural hoapplying projects. Capacity utilisation across the cement sector remains steady at around 80 per cent, and fourth-quarter FY26 volumes are expected to grow 8–10 per cent year-on-year due to new project awards.
Demand Holds In Paints, Tiles And Cement Despite Price Pressures
In paints, premium low-VOC products recorded a 15 per cent demand uptick in March, supported by metro redevelopment projects and luxury hoapplying launches. Green-certified projects have risen 25 per cent, further supporting demand. Industrial paints have also benefited from a revival in the auto and shipbuilding segments, while Tier-II market expansion has increased distribution reach by 18 per cent.
Ceramic tile manufacturers, particularly in Gujarat clusters, are operating at 90 per cent utilisation for large 60×60 cm porcelain slabs, replacing compacter formats. Export demand to Gulf Cooperation Council markets has risen 22 per cent, while domestic premiumisation has captured a 35 per cent share. Water-efficient glaze technologies are supporting manufacturers comply with urban building by-laws.
However, geopolitical tensions in West Asia have sharply inflated the prices of steel, plywood, laminates and PVC, with PVC costs rising as much as 30 per cent. In Indore, construction costs have increased from Rs 1,600 to Rs 1,800 per square foot, and builders in the region report a 50 per cent drop in sales due to the spike in material costs. Supply chain disruptions have hit petrochemical-linked materials particularly hard.
Private Equity, M&A And ECM Activity Grind To A Halt
While operational indicators point to demand resilience in segments such as paints, tiles and cement, capital flows into the sector have slowed dramatically. Private equity activity in building materials recorded only two deals in calconcludear year 2026 so far, with total PE investment of Rs 0.3 billion between January 1 and March 31. The largest deal involved Sjarsg Materials raising just Rs 20 million from a junior venture capital investor. The report notes that the sector remains largely unorganised, limiting private equity participation unless companies demonstrate a clear differentiated advantage.
Merger and acquisition activity has also been absent. There were no M&A deals in February 2026, and none recorded in the sector so far in calconcludear 2026. The last major transaction cited was Asian Paints acquiring a 40 per cent stake in Obgenix Software for Rs 1,867 million in FY25. Historically, most M&A activity has been concentrated in tiles and sanitaryware.
Equity capital market activity has similarly stalled. There were no ECM transactions in the building materials sector in calconcludear 2026 to date. The last reported deal was the Euro Pratik IPO worth Rs 4,513 million. Prior to that, the last QIP in the sector was by KEI Industries. The report describes the ECM market for building materials as having “come to a standstill”.
Despite muted capital activity, listed players continue to trade at elevated valuation multiples across segments. In paints and coatings, average EV/EBITDA multiples for FY26 estimates stand above 21 times. Pipes and fittings companies trade at a median EV/EBITDA of over 25 times for FY26 estimates, while tiles and sanitaryware companies reveal median EV/EBITDA multiples above 16 times. Plywood and laminate companies also maintain double-digit margin profiles with improving return on equity expectations for FY27.
The report suggests that the sector’s fundamentals remain intact, supported by urban redevelopment, infrastructure awards, export demand and premiumisation trconcludes. However, rising input costs combined with limited access to fresh capital may slow expansion plans and strain compacter or unorganised players.
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