Cement demand to remain buoyant despite profit margin pressure

April 20, 2022

Cement demand is expected to grow by 7-8 per cent to about 382 million tonne (mt) in this fiscal though their profit margins may come under pressure due to a sharp increase in the input cost. The growth in cement demand will be led by rural housing and infrastructure sectors.

Anupama Reddy, Assistant Vice President, ICRA said the recent budgetary allocation of over ₹9.2-lakh crore towards agriculture, affordable housing and capital expenditure, primarily on roads and railways, are expected to augur well for cement demand.

In the urban real estate sector, the growth in hiring numbers, stable income levels, and demand for better and larger homes on account of the shift to the hybrid working model in customer segments working in IT/ITES, BFSI, and related sectors is likely to support demand going forward, he said.

High input costs to continue

The input costs are expected to remain high in this fiscal with gross operating profit per tonne of cement companies declining 15 per cent to ₹875-925 a tonne.

While the revenue of cement companies are expected to increase by 8-10 per cent in this fiscal, the high input costs are likely to exert pressure on operating margins, resulting in a contraction by about 270-320 bps to about 17.3 per cent. The all-India cement production in 11 months of the last fiscal was up 22 per cent year-on-year (y-o-y) at 323 mt.

Based on these trends, ICRA estimates the production to grow by around 18-20 per cent and surpass pre-Covid levels, to reach about 355 mt in FY22. Cement prices have increased by around 4-5 per cent in FY22, driven by the price hikes taken by the cement companies and to pass on the rising input cost, primarily power, fuel expenses and freight expenses.

On the input costs front, coal, pet coke and diesel prices remained higher in the last fiscal by 136 per cent, 73 per cent and 18 per cent y-o-y, respectively.

Published on

April 20, 2022

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