Home / Companies / News /  Profitability of cement companies to fall for second straight fiscal: Crisil

New Delhi: Operating profitability of cement makers will decline around 15% on-year to 900-925 per tonne in fiscal 2023, adding to the pain of a 9% decline last fiscal, as increase in realisations will not be enough to offset the increase in prices of coal, petcoke and diesel that has pushed the average cost of production higher, the rating agency Crisil said in a report on Monday.

According to the rating agency, the 17% growth in cement demand during the first quarter of the fiscal, albeit on the low base of the previous fiscal, offers a silver lining. Though growth may taper in subsequent quarters, and print at 8-10% for the full fiscal, it would still be the highest since fiscal 2019.

The higher demand will mitigate the impact of lower profitability on absolute operating profits and cash accruals of cement makers, cushioning their credit profiles.

A Crisil Ratings analysis of 22 cement companies, accounting for 85% of the market volume in India, indicates as much.

“Cement volume growth this fiscal will be driven by non-housing segments, wherein offtake is expected to rise more than 15%. Demand from the infrastructure segment will be aided by government spend, while industrial/ commercial demand will be driven by growing investment in data centres and warehousing, and the low base of the previous fiscal. Offtake from housing segment is expected to grow around 5%, taking overall cement volume growth to 8-10%," said Koustav Mazumdar, Associate Director, CRISIL Research.

Eastern India (including the north-east) will lead the demand growth, at 13-14%, largely on a lower base. The central and southern regions may see ~10% growth, given demand from key infrastructure projects. The northern and western regions, which are relatively more developed in terms of rural-urban mix as well as infrastructure, may see mid-single-digit demand growth, rating agency Crisil said.

As for production cost, petcoke prices remain higher than last year’s average despite softening in recent months. The same goes for imported coal. Power and fuel costs, which account for up to 30% of the production cost of cement manufacturers, may rise around 300 per tonne this fiscal. Similarly, freight costs will be 10-15 per tonne higher, tracking diesel prices that remain high despite some stability of late, it added.

“Cement production cost may rise 8-9% this fiscal, given that the benefit of softening petcoke and coal prices will be visible only towards the end of the fiscal as the high-cost inventory depletes. Cement prices, on the other hand, may go up by just 3-4%, bringing down the operating profitability of cement makers (Ebitda per tonne) by 150-175 to 900-925 this fiscal. This will still be a tad higher than the decadal average," said Ankit Kedia, Associate Director, CRISIL Ratings.

Further, a significant spurt in capex to more than 27,000 crore this fiscal from less than 19,000 crore in the last will not make a dent as most of this capex would be funded largely from internal accruals.

That said, any significant delay in softening of petcoke and coal prices or inability of companies to increase cement prices will bear watching.

Catch all the Corporate news and Updates on Live Mint. Download The Mint News App to get Daily Market Updates & Live Business News.
More Less

Recommended For You

Trending Stocks

×
Get alerts on WhatsApp
Set Preferences My ReadsWatchlistFeedbackRedeem a Gift CardLogout