Cement industry margin to shrink, prices could be hiked by 4% in ongoing fiscal: Report

Cement prices are expected to rise from 3.5 to 4 percent in the ongoing financial year due to a rise in input costs, according to a report by CareEdge Ratings., which said demand is expected to grow at 8-9 percent compared to the corresponding period the previous fiscal. Add to that the rising cost of fuel due to inflation, and prices are likely to increase by Rs 300-330 per tonne, the report said.

Because of this, CareEdge estimates that an cement companies would increase prices by approximately Rs.25-30 per bag to offset the cost inflation on a year-on-year basis. Further, the companies would require a hike of Rs 45-50 per bag to restore profitability to the 2020-21 fiscal levels.

"The moderation in the EBITDA margins amid the cost pressures and after considering the year-on-year price hikes to the tune of 3.5-4 percent will be in the range of 320-380 bps YoY in FY23 or an EBITDA per tonne impact

of Rs 180-200," said the report.

Meanwhile, cement companies saw their margin contraction, weak  prices, surge in fuel costs, and lower demand during the July-September quarter.

Ambuja cement’s margin shrunk to 8.3 percent for the quarter as against poll expectations of 12.3 percent. This compares to 21.7 percent in the same quarter of the previous financial year. Impacted by elevated costs, ACC cement, which follows January-December financial year, recorded a weaker-than-expected margin of 0.4 percent.

Ultratech Cement’s margin declined 9.2 percent basis points YoY to 13.4 percent following an increase in the price of raw materials.

Shree Cement’s margin came in at 13.8 percent, against poll estimates of 15.1 percent. This is l;ower compared to the 28 percent margin in the second quarter of the previous financial year. Analysts had expected the margin to be impacted by a sharp increase in costs and weak realisations sequentially.

Shares of Ambuja Cement closed up 0.6 percent, Ultratech Cement shares closed up 0.17 percent, Shree Cements closed up 0.9 percent and ACC cements shares closed up 0.8 percent at the end of trading on the BSE on Monday.