Higher input costs continue to remain a major concern for Indian cement-makers as they stare at a possible margin hit for the Jan–Mar quarter. With demand improving, price hikes in select markets are not ruled out though.

Brokerages say EBITDA/tonne contraction ranges from 14 per y-o-y (at ₹995/tonne from ₹1,150/tonne last year) to aorund 20 per cent y-o-y. Some brokerages peg an even steeper drop in margins.

According to trade sources, both imported coal and petcoke prices are higher by 70 per cent and 40 per cent, respectively, since January 2022 on account of rising conflict between Russia and Ukraine. Prices are hovering at around $250 per tonne (imported coal) and $200 per tonne (for petcoke).

Marginally higher diesel prices – post polls – have further hit overall costs, some cement-makers told BusinessLine, requesting anonymity.

Fuel and diesel account for 40–50 per cent of overall costs.

“Although crude prices have cooled off from recent highs, the situation still remains dynamic, at least till the geopolitical crisis between Russia and Ukraine subside,” an official of a cement company said.

Some of the east-focused cement companies like Nuvoco, Star Cement, and Dalmia are expected to have “better profitability” in Q4 (Jan - Mar) because of improved realisation recovery quarter-on-quarter.

According to Systematix Institutional Equities, margins for cement companies “will remain weak in the near term” as pricing power of cement-makers continue to be “constrained” due to new capacities coming on-stream and increasing buyer resistance (with ballooning working capital requirements across user industries).

“Commodity price increases (also) appear more persistent in the near term (and) as a result, we see any respite on the margin front only in H2 (FY23),” it said.

Axis Securities anticipates higher input costs to impact operational performance in Q1 and Q2 of FY23. From there on, it should subside subject to cool off in commodity prices.

Incidentally, cement-major ACC — which declared its Q1 (Jan - Mar quarter) numbers on Tuesday — recorded an EBITDA margin of 14.3 per cent (lower than the 20 per cent in the year-ago-period). The blended EBITDA for the company was down 24 per cent y-o-y.

Price rise

According to Koustav Mazumdar, Associate Director, Crisil Research, an increase in prices is inevitable to partially mitigate costs. The Jan–Mar period saw a marginal uptick in costs (sequentially) because of low-cost inventory. A bigger impact of input cost hikes will be felt in the first two quarters of FY23.

After rising to ₹390 per bag over the past 12 months, domestic cement prices are set to climb another ₹25-50 across regions in April as manufacturers pass on rising costs, both Crisil and market sources point out.

Post a demand dip in Q3 FY22, Q4 saw some improved demand. Demand increased 20 per cent year-on-year in the first half of FY22, Crisil said, but fell to 7 per cent for the full fiscal after a slowdown in the second half due to unseasonal rains, sand issues and labour unavailability.

In FY23, cement volume growth is expected to be in the 5-7 per cent range, driven by affordable housing demand from Tier-2 and Tier-3 cities, along with infrastructure. However, high construction costs can limit demand uptick.

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