High input costs are expected to push cement retail prices to an all-time high of Rs 400 per bag in FY22.

The main inputs used in the sector are coal and diesel. According to rating agency Crisil, after rising by an average of Rs 10 to 15 per bag since August, another rise of Rs 15 to 20 is likely in the coming months.

Moreover, cement manufacturers' earnings before interest, taxes, depreciation, and amortisation (EBITDA) are expected to fall by Rs 100-150 per tonne in FY22.

According to the rating agency this fiscal year, cement sales are expected to increase 11 to 13% year over year, albeit from a low base. This will largely mitigate the impact of cost pressure on cash accruals while also maintaining credit profiles. The analysis by the agency covers 17 cement companies, accounting for 75% of the total market share.

Crisil Research Director Isha Chaudhary said that as the impact of Covid-19 fades, demand for cement will pick up across all segments, including infrastructure, housing, and industry.

Cement demand grew by more than 20% in the first half of this fiscal year but should moderate to 3 to 5% in the second half due to a high base effect, translating to 11 to 13% growth for this fiscal year.

South India saw the largest increase of Rs 54 per bag in October compared to the previous month, followed by the central region with Rs 20 per bag. North India saw a Rs 12 increase, while west India saw a Rs 10 increase.

Crisil Associate Director Ankit Kedia told the media that while the cost pressure may ease over time as coal and diesel prices fall from their October highs, it will take two to three quarters for this to be reflected in the cost of production.

As a result, cement producers' operating profitability, or Ebitda per tonne, is expected to fall by Rs 100-150, or 300-400 basis points, this fiscal. Absolute profits, on the other hand, will be unaffected because the higher volume will offset the impact of margin moderation.

Image Source

---

Also read: Cement prices to surge on the back of rising coal costs
Also read: Cement firms in India increase cement costs as input prices inflate