Connect with us

Concrete

A Balancing Act

Published

on

Shares

As the Indian cement sector grapples with the paradox of turnover growth and decreased profitability, ICR explores the reason behind this phenomenon.

As per an estimate by CareEdge Research, India’s cement production ranged between 380-390 million tonnes in FY23, docking a growth rate of 8-9 per cent y-o-y. This growth in production is spurred by increased demand and this will continue in FY24, too, thanks to the upcoming general elections. However, that does not ensure higher profit margins. As is seen in the economic analysis, although cement production and consumption grew by 11 per cent in FY23 in the period from April to November on a year-on-year (y-o-y) basis, the EBITDA margins of cement players declined by almost 10 per cent y-o-y in H1FY23. Price hikes in per bag of cement failed to tackle inflation, resulting in cement companies grappling with restricted profit margins. This unprecedented anomaly has got trade pundits to reconsider the dynamics of the cement industry.
The cement players were not able to pass the input cost escalation entirely, which impacted the EBITDA margins in H1FY23. The power and fuel costs were expected to remain elevated in the near term due to concerns about global supply while the price hikes may not be sufficient to cover the elevated costs, thereby adversely impacting margins. The profit margin of the cement companies were expected to decline by 400-500 bps in FY23.
Cement is a cyclical industry, which means that fluctuations in the economy tend to adversely affect profitability. This has resulted in cement players facing the antithesis of high turnover and low profitability. This can be attributed to some of the major causes such as input costs and logistics cost that eat into the revenues. Let’s backtrack a little to the last quarter of the previous financial year to look at how trends have progressed in order to get a clear perspective of the current situation.

Taking Stock
As per a report by CareEdge Ratings, the operating profit margins of cement contracted by 320-380 basis points to 16.3-16.8 per cent in FY23 as input cost pressures remained constant. The surge in power and fuel costs as well as the escalation of limestone prices affected the cement margins considerably. But this trend changed as markets have witnessed a stabilisation of coal prices. A Motilal Oswal Financial Services report states, “As per our calculations, the average spread for cement companies should improve by ~INR300/t based on spot coal/petcoke prices and most of the benefits will start reflecting in Jun’23, as per companies’ commentaries, as they are carrying high-cost coal inventory.
“Current spot prices of US/Saudi Arabia petcoke and South African coal are at similar levels of 1QFY22 average. Though domestic pet coke prices seem to be higher than imported pet coke prices, we expect a reduction in domestic petcoke prices in coming weeks. Recently, IOCL reduced the petcoke price by 4-9 per cent on 23rd May’23 (total reduction of 11-17 per cent in May’23),” stated the report.
The favourable trend of fuel and raw material prices that the cement sector has witnessed is yet to reflect on the profit margins. However, input costs are not the only parameters affecting profitability of cement.

Demand Surge
One of the major highlights of the pre-election period in India is speedy mobilisation of infrastructure projects across the country. The Central Government is focussed on completion of major projects including the affordable housing schemes. This has called for a boost in demand for cement. So far expert analyses have predicted that Indian cement companies are geared up to meet the as cement supply is marginally surpassing projected demand. However, cement demand has been surging since FY23 itself as India’s cement production and consumption each grew 11 per cent year-on-year (YoY), according to a report by CareEdge.
In this tug-of-war between cost inputs and rise in demand, the former had an upper hand, resulting in lower margins for the cement companies. Although the demand is surging, it is not enough to battle the high input costs, especially of fuel, thereby being detrimental to the profit margins of cement companies. So, where does cement price figure in all of this?

Pay the price
It is a common practise for cement makers to hike prices for end-users during certain peak periods across the year. The pricing vastly differs in different states as cement is basically a sectoral industry. Depending on the location of the cement plants and the logistics expense, price per cement bag differs from state to state. Additionally, on a sectoral
level, pan-India brands have to compete with local ones and pricing becomes an important distinguishing factor. From an end-user’s perspective, cement as a product largely remains the same and there is no brand loyalty, therefore, price becomes an all-important factor.
While cement companies tried increasing price per bag in February-March 2023, these hikes did not translate into actual revenue for a number of reasons. Most of the hikes metamorphosed into discounts, price cuts or incentives, given the tough competition. So, when you look at the bigger picture of cement pricing across India, the last two quarters of FY23 saw a flat graph, with occasional negative dipping.
This meant that cement companies were unable to pass on the input costs to the consumer and had to internalise the same, resulting in negatively impacted bottom lines.
To summarise, the Indian cement sector is witnessing a rise in turnover due to robust demand fuelled by infrastructure projects and real estate development. However, profitability is being hampered by escalating input costs, rising costs of logistics and last mile connectivity, the inability to pass on the entire burden to consumers and intense market competition. However, the outlook remains positive as cement companies are already operating on the background of a sturdy turnover and the demand only going to increase going forward. Margin corrections will take place eventually as other factors fall in line, making FY24 a profitable year for cement. This forecast has kept the sector’s outlook positive, with sustained demand growth anticipated in the coming months, which could support improved profitability in the long run.

Concrete

Cement Makers’ Margins To Fall Rs 50-75 Per Tonne Amid West Asia Conflict

Crisil Sees Margins Easing Despite Steady Demand

Published

on

By

Shares



Crisil said operating margins of Indian cement manufacturers are expected to decline by Rs 50-75 per tonne (t) this fiscal to Rs 925-950 per t due to higher input costs triggered by the West Asia conflict. The analysis covered 18 cement companies accounting for nearly 90 per cent of India’s domestic cement capacity and noted margins had improved sharply to around Rs 1,000 per t in fiscal 2026.

Crisil noted that the reduction would be driven mainly by higher power and fuel costs, which account for about 30 per cent of total costs, as petcoke and imported coal prices have surged amid geopolitical uncertainties. Freight costs, which account for about a quarter of total costs, are also expected to remain elevated because of higher diesel prices. The impact on profitability is likely to be more pronounced in the first half of the fiscal year before easing commodity prices moderate cost pressures later.

The rating agency said steady domestic demand and strong balance sheets should keep credit profiles stable despite the moderation in margins. Green energy currently accounts for 35-40 per cent of the sector’s total electricity consumption and is expected to partly cushion higher energy costs. Operating cash flows are likely to remain resilient, supported by projected 6-7 per cent growth in cement demand this fiscal.

Crisil highlighted that demand growth will be driven primarily by infrastructure spending, which meets about one-third of sector consumption, and by a nearly 18 per cent higher budgetary allocation for core ministries that should support project execution. Weaker rural housing demand amid pressure on agricultural incomes from a possible below-average monsoon may be offset by improved urban housing demand supported by favourable home-loan rates and a strong pipeline of Pradhan Mantri Awas Yojana-Urban projects. Ongoing capacity additions will keep capital expenditure elevated and may lift net debt to EBITDA to between 1.2 and 1.4 times from around 1.0 time last fiscal, though ratios are expected to remain healthy.

Continue Reading

Concrete

UltraTech Board Approves Rs 50 bn Fundraise Via NCDs

Company to issue half a million debentures for expansion plan

Published

on

By

Shares



UltraTech Cement’s board of directors has approved raising Rs 5,000 crore (Rs 50 bn) through non?convertible debentures issued in rupees.

The finance committee cleared a proposal to issue up to 500,000 fully paid, unsecured, listed, rated, redeemable, rupee?denominated, non?convertible, non?cumulative debentures of Rs 1 lakh each (Rs 0.1 mn each), aggregating to the Rs 5,000 crore programme.

As of June 2026 the firm reported net debt of Rs 15,875 crore (Rs 158.75 bn) and said its capacity expansion projects under execution are backed by capital expenditure of about Rs 17,000 crore (Rs 170 bn) over the next two to two?and?a?half years.

UltraTech spent Rs 9,500 crore (Rs 95 bn) on capital expenditure in financial year 2026 and in April the group crossed 200.1 mn tonnes per annum of domestic grey cement capacity and 205.5 mn tonnes per annum of global capacity.

The chief financial officer indicated the company would take consolidated capacity beyond 242 mn tonnes per annum, with grey cement capacity reaching 212.7 mn tonnes per annum by the end of financial year 2027. He noted the net debt?to?earnings before interest, taxes, depreciation and amortisation ratio stood at 0.87 times as of June 2026 and the company was confident of ending financial year 2027 with the ratio below one time.

In the first quarter of financial year 2026?27 UltraTech’s net profit attributable to owners rose 16.8 per cent year?on?year to Rs 2,599.3 crore (Rs 25.993 bn) and revenue from operations increased 15.9 per cent to Rs 24,648.20 crore (Rs 246.482 bn). The board approval is expected to complement internal cash flows as the company advances its expansion programme.

Continue Reading

Concrete

Lokesh Lays Stone For Rs 31 Billion Cement Unit In Kadapa

Line-2 expansion to make Kadapa a major cement hub

Published

on

By

Shares



Andhra Pradesh Education and IT Minister Nara Lokesh on Wednesday laid the foundation stone for the Line-2 expansion of Dalmia Bharat Cement at Chinnakomerla village in Mylavaram Mandal in Kadapa district. The project carries an investment of Rs 31 billion (bn) and is slated for completion by the third quarter of the financial year 2028. The expansion is intended to boost industrial growth and employment generation across the Rayalaseema region.

Once commissioned, the Kadapa facility will become Dalmia Bharat’s largest integrated cement manufacturing ecosystem in southern India, creating over 1,000 direct and indirect jobs and opening new business avenues for regional micro, small and medium enterprises and transport operators. Lokesh said the expansion signalled growing corporate confidence in the state and reflected the practical ease of doing business that secured repeat investment.

He placed the project within the government’s wider economic targets and recalled the Yuvagalam padayatra commitment to generate two million (mn) jobs within five years, noting that the state would cultivate talent while industry created opportunities. Lokesh highlighted Andhra Pradesh’s competitive pursuit of major manufacturing accounts, mentioning past successes and a personal initiative to engage global investors when persuading them to anchor expansion in the state.

The plant will leverage Kadapa’s abundant limestone reserves to scale production and sustainability. Clinker capacity is planned to rise from two point five million tonnes per annum (mn tpa) to six point one mn tpa, while overall cement output will increase from three point six mn tpa to nine point six mn tpa. The unit is designed to operate on over eighty per cent renewable energy and deploy waste heat recovery, zero liquid discharge, water recycling and advanced AI systems to optimise efficiency. Industries Minister TG Bharat, BC Welfare Minister S. Savitha and Jammalamadugu MLA C. Adinarayana Reddy attended the ceremony.

Continue Reading

Video Thumbnail

    SIGN-UP FOR OUR GENERAL NEWSLETTER


    Trending News

    SUBSCRIBE TO THE NEWSLETTER

     

    Don't miss out on valuable insights and opportunities to connect with like minded professionals.

     


      This will close in 0 seconds