Cement firms sees healthy demand but profitability hit as input costs rise: Report
1 min read . Updated: 30 Jan 2023, 05:11 PM IST
PremiumPower and fuel costs are expected to remain elevated in the near term due to concerns about global supply while price hikes may not be sufficient to cover elevated costs, thereby adversely impacting margins
New Delhi: India’s cement production and consumption each grew 11% year-on-year (YoY) during the first eight months of fiscal 2023, driven by the government’s push for infrastructure development and increased real estate activity, according to a report by CareEdge Ratings.
The report said that Ebitda margins of cement players declined almost 10% YoY in H1FY23 due to an increase in power and fuel cost on the back of a sharp surge in coal prices. Limestone prices also escalated during H1FY23.
“The cement players were not able to pass the input cost escalation entirely which impacted the EBITDA margins in H1FY23. The power and fuel costs are expected to remain elevated in the near term due to concerns about global supply while the price hikes may not be sufficient to cover the elevated costs, thereby adversely impacting margins. CareEdge Research expects the profit margin of the cement companies to decline by 400-500 bps in FY23," it said.
There has been a 7% YoY increase on an average in wholesale cement prices in H1FY23. While prices remained flattish in Q3, CareEdge expects an increase of about ₹15-20/50kg bag in Q4FY23, seasonally strongest quarter, to partially offset inflationary pressure.
“The cement industry is expected to see a continued uptrend in volume growth in the near term. In FY23, the volume growth is expected to be around 8-9% owing to renewed demand in the housing and infrastructure segment coupled with the government’s continued focus on infrastructure development in light of Centre elections in 2024. Despite the uptrend in consumption, the profitability of the cement players is expected to decline by 400-500bps in FY23 due to elevated power and fuel cost," Tanvi Shah, director, CareEdge Advisory & Research, said.
