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Sharp rise in input cost dents cement firms’ profitability

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Power and fuel, and freight expenses account for 50-55 per cent of the total costs for cement manufacturers and the cost of production is likely to be higher by 3-4 per cent year-on-year during the current quarter.

A significant increase in input costs has resulted in a steady increase in cement prices across India over the current quarter. However, the rise in retail prices is unlikely to benefit cement companies in the short term. In fact, cement manufacturers are likely to see an impact on their profitability during the quarter, say analysts tracking the sector.

According to research agency ICRA, cement companies have already undertaken price hikes to the tune of around 7 per cent on average year-on-year (3 per cent-8 per cent month-on-month) during March 2021 due to the increase in input costs. ??his hike is driven by the increase in the input costs, primarily power and fuel expenses and freight expenses over the last few months. Further, the prices are likely to largely sustain in the near term supported by the healthy rural demand and the significant uptick in infrastructure activity,??it said in a report.

Power and fuel, and freight expenses account for 50-55 per cent of the total costs for cement manufacturers and the cost of production is likely to be higher by 3-4 per cent year-on-year during the current quarter. Coal prices have also increased from $49 per tonne in September 2020 to $88 per tonne in February 2021, and $84 per tonne in March 2021.Pet coke, another key input resource for cement, has seen prices reach Rs 12,600 per tonne in March 2021 from Rs 8,000 per tonne in September 2020. In the fourth quarter of FY21, these prices have been higher by 73 per cent year-on-year and 29 per cent quarter-on-quarter.

The increase in the power and fuel expenses caused by higher pet coke prices and the rise in freight expenses due to higher diesel prices has resulted in a decline in cement companies??operational profit margins by 8.7 per cent compared to the previous quarter. This figure has been declining since the second quarter of the previous year??alling 7.6 per cent quarter-on-quarter in Q2 FY21 and a 9 per cent quarterly fall in Q3 FY21.

??hile the cement prices are likely to largely sustain driven by the significant uptick in the demand, the higher input costs due to the increasing crude oil prices are likely to result in moderation of PBIDTA/MT??With the decline in OPBIDTA/MT, the debt coverage metrics are expected to witness marginal deterioration in FY2022 – TD/OPBIDTA to 1.8x times from 1.6x times and interest cover to 6.4x times from 7.0x times in FY2021,??the ICRA report said.

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Concrete

India’s Cement Sector Cuts Energy Use, but Worker Safety Worsens

iFOREST finds efficiency gains alongside water and safety concerns

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India’s cement sector has improved its energy and carbon efficiency, but rising groundwater use in water-stressed regions and deteriorating worker safety remain significant concerns, according to a report by the International Forum for Environment, Sustainability & Technology (iFOREST). The findings also highlighted weak policy implementation and gaps in sustainability reporting.

India, the world’s second-largest cement producer, uses about 2.54 gigajoules of energy per tonne (GJ/t), below the global average of 2.88 GJ/t. However, renewable sources accounted for only 5.1 per cent of the sector’s energy mix, indicating continued dependence on conventional sources.

The report assessed 18 cement companies against 107 Business Responsibility and Sustainability Reporting indicators for FY24 and FY25. The companies covered 87 per cent of India’s cement production. Carbon emissions intensity declined from 0.58 to 0.57 tonnes of carbon dioxide per tonne, but total emissions increased 4 per cent to 224.3 mn t, equivalent to about 6 to 7 per cent of India’s overall emissions.

Overall water withdrawal declined 9.5 per cent during the study period, while withdrawals in water-stressed areas, mainly in Rajasthan, increased by more than 20 per cent. Groundwater’s share of withdrawals in these areas rose from 27 per cent to 38 per cent, raising concerns about the sector’s impact on vulnerable water resources.

The sector employs about 228,000 people, including 63 per cent contractual workers, 3.1 per cent women and 0.07 per cent persons with disabilities. Women in key managerial roles earned 26.8 per cent less than men, while median pay for women workers fell 11.1 per cent in FY25 as men’s pay increased. Worker injuries rose 36.5 per cent to 359, and fatalities increased from 17 to 22, with workers accounting for more than 90 per cent of deaths.

iFOREST recommended cement-specific reporting guidance, standardised metrics, mandatory production disclosure and third-party verification. It also called for environmental, social and governance policies to be integrated into business strategies and implemented more effectively on the ground.

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Concrete

Ambuja Cements Expects Volume Growth to Outpace Industry in H2

Ambuja Cements sees stronger trade and institutional demand in H2 FY27.

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Ambuja Cements expects its sales volumes to grow faster than the cement industry during the second half of fiscal year 2027, as it seeks a recovery in institutional demand after a weak first half. The Gautam Adani-owned company is aiming to rebuild volumes while protecting profitability.

The company reported a 90 per cent year-on-year decline in consolidated net profit attributable to owners of the parent to Rs. 1.93 bn for the quarter ended 30 September, from Rs. 17.74 bn a year earlier. The previous year’s profit included a reversal of income-tax provisions worth Rs. 16.97 bn. Revenue from operations rose marginally to Rs. 91.66 bn from Rs. 91.3 bn.

Trade volumes increased 8.6 per cent year-on-year in the September quarter, but weaker institutional sales left overall volumes broadly unchanged. Ambuja Cements expects both trade and institutional sales to turn positive in the third and fourth quarters. Trade sales are made through dealers and distributors, while institutional or business-to-business sales involve bulk supplies to infrastructure developers, government projects and real estate companies.

The company had earlier reduced institutional sales that did not generate adequate returns. It now plans to rebuild the business selectively, while continuing to prioritise trade sales and higher-value products. Trade accounted for 74 per cent of sales in the quarter, up six percentage points from a year earlier, while premium products increased to 37 per cent of trade sales from 35 per cent. Blended cement’s share rose to 82 per cent from 77 per cent.

Ambuja Cements commissioned 4.6 mn t of capacity during the quarter. Another 3.2 mn t at Bathinda in Punjab and Jodhpur has stabilised, with the facilities expected to ramp up in the second half. A further 2.4 mn t facility at Varkala in Bihar is scheduled for commissioning during the period. Higher fuel and logistics costs remain a challenge, while the company has realised a cement price increase of about Rs. 10 per bag in October and is targeting operating costs of Rs. 4,250 per t for the full year.

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Concrete

JK Lakshmi Cement Begins Rs 110 Billion Assam Plant Project

The 2.5 MTPA integrated cement plant is expected to be completed by FY2029.

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JK Lakshmi Cement has recently laid the foundation stone for Project Kamakshi, its first integrated cement manufacturing facility in Assam, marking its entry into Northeast India. The groundbreaking ceremony was held at Umrangso village in Dima Hasao district in the presence of Assam Chief Minister Himanta Biswa Sarma.
The project involves an investment of Rs 110 billion, including the mining lease, and will have an annual cement production capacity of 2.5 million tonnes, supported by a 1 million tonne clinkerisation unit. Scheduled for completion by FY2029, the facility is expected to generate employment for over 2,000 people while catering primarily to the growing Northeast market.
The integrated plant will feature dedicated railway sidings to facilitate efficient transportation of raw materials and finished cement, strengthening supply chain reliability and regional distribution.
Vinita Singhania, Chairperson and Managing Director, JK Lakshmi Cement, said, “”Project Kamakshi is the start of a long-term relationship with Assam and the wider North East. This is a region that is building fast, and it deserves quality cement made close to home. With this plant, we want to bring scale, jobs, and dependable supply to the region. At JK Lakshmi Cement, we believe that building a stronger India goes beyond infrastructure. It is also about growing together with the communities we serve.””
The investment aligns with the company’s strategy to expand into high-growth markets beyond its established presence in Northern, Western and Eastern India. The project is also expected to support regional economic development and infrastructure growth.
JK Lakshmi Cement aims to pursue its expansion plans while working towards its long-term target of achieving net-zero emissions by 2047.

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