Crisil Intelligence reports that Indian cement manufacturers will see a significant rise in profitability this fiscal. Operating margins are set to expand by 250-300 bps due to better realisations, stable costs, and strong demand growth.
Profitability and Demand Outlook
Cement manufacturers are expected to see a significant improvement in profitability this fiscal, with operating margins set to rise by 250-300 basis points (bps) owing to better realisations supported by premiumisation and stable input costs, according to Crisil Intelligence.
The rating agency noted that cement demand is strengthening, with volume growth projected at 6.5-7.5 per cent on-year this fiscal from 5 per cent last fiscal. It added that while the first half saw a modest 5 per cent on-year rise in demand, the second half is expected to witness an accelerated 8-9 per cent on-year growth due to pent-up demand and improved liquidity.
Price and Realisation Trends
Average pan-India cement prices will largely remain stable at Rs 354-359 (+/- 1 per cent) per 50 kg bag. Crisil said the GST rate cut from 28 per cent to 18 per cent would exert downward pressure on retail prices, but premiumisation and higher demand would support realisations.
Sehul Bhatt, Director at Crisil Intelligence, said, "The average pan-India cement prices saw a modest 3 per cent on-year increase during the first half of this fiscal. However, we anticipate the full impact of the GST reform will be realised in the third quarter, leading to a 4-5 per cent decline in retail prices in the second half of the fiscal year. Despite subdued pricing, the industry is poised for higher realisations this fiscal, driven by healthy volume growth."
According to the analysis of 14 major cement manufacturers, which together account for nearly 85 per cent of the industry's revenue, realisations increased around 5 per cent in the first half of the year. However, the pace is likely to moderate with second-half realisations rising 0-2 per cent, resulting in a full-year improvement of 2.5-3.5 per cent.
Regional Price Variations
Region-wise, the agency expects a recovery in the east and south, where prices may inch up 0-2 per cent after sharp declines last fiscal. In other regions, prices are forecast to soften by 2-3 per cent.
Cost-Side Analysis and Projections
On the cost side, power and freight, together comprising 54-55 per cent of the total expenses, are projected to fall by 2-3 per cent and 1-2 per cent, respectively. Raw material costs may stay elevated due to higher limestone prices, but overall expenditure is expected to remain stable, helping operating margins expand to 18-20 per cent from 16 per cent last fiscal.
Sachidanand Choubey, Associate Director at Crisil Intelligence, said easing global energy prices would aid manufacturers further. "After declining ~9 per cent in fiscal 2025, the price of Australian thermal coal is expected to fall 17-18 per cent this fiscal... Dated Brent crude is also expected to slip a further 17-18 per cent... While petcoke prices have seen a moderate increase, easing coal and crude prices, coupled with steady diesel cost, should continue to provide cost relief to players." (ANI)
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