Cement companies’ production cost to remain high

The cost of production for cement companies is expected to remain higher next fiscal though demand may go up.

Pet coke and diesel prices linked to crude oil have increased in the recent months while coal price will remain sensitive to demand in China and India and to the extent of change in the energy mix from coal to natural gas and renewables, globally.

Cement demand will increase 18-20 per cent in FY22 even as volumes increase to the FY20 levels. The volume growth and the pricing discipline of the industry is likely to support the operating margins of 21 per cent next fiscal.

Anupama Reddy, Assistant Vice-President, ICRA, said the rural offtake is likely to be supported by the positive farm sentiment with the timely Rabi sowing and favourable groundwater and reservoir levels, which are likely to boost yields.

Growth in government programmes

The traction in the PMAY-Gramin is expected to continue and the PMAY-Urban has also picked up faster in recent months as against other housing segments owing to low ticket sizes and government incentives, she said.

Cement companies will add higher capacity of about 22 mtpa next fiscal against 17 mtpa this fiscal. The East region leads the capacity expansion with addition of about 15-17 mtpa. With the revival in demand, utilisation is likely to improve to about 64 per cent next fiscal from 56 per cent this fiscal.

Anupama Arora, Vice-President, ICRA, adds: “With the recent order by the Competition Commission of India for investigation into the alleged cartelisation by cement companies, any significant increase in the cement prices is unlikely in the near term. The expected increase in the input costs — power and fuel costs and the freight expenses — would weigh on the operating margins of cement companies in FY22.”

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