Cement companies expect costs, muted demand to dent growth

Mumbai: Cement producers are tempering their growth expectations, while flagging concerns about the impact of higher costs due to the protracted West Asia crisis. They see demand slowing to a 5-7% increase this fiscal year from 8-9% in FY26.

“The geopolitical conflict in the Middle East and forecast of moderate monsoon conditions may act as headwinds for the sector and may impact its growth momentum in the short-term,” said Neeraj Akhoury, managing director, Shree Cement, after the company’s quarterly earnings recently.

Companies have guided for a 15-20% hit on operating profit made on each tonne of cement due to the prevailing higher costs of fuel and packaging material, increased logistics charges, and the impact of a weaker rupee against the dollar.

“Supplier crunch of bags and rising cost of PP granules have led to an increase in packing costs,” said Puneet Dalmia, MD, Dalmia Bharat. “Fuel costs have also gone up, and there might be some more increases in the pipeline.”

The five largest cement companies-UltraTech Cement, Adani Cement, Shree Cement, Dalmia Bharat, and Nuvoco Vistas Corp-are expecting on average an impact of about ₹150 per tonne on operating profit in the current quarter.

These companies made an operating profit of ₹887-1,253 on each tonne of cement sold in the March quarter, with Adani Cement’s profitability the lowest, and UltraTech Cement the highest. The operating profit per tonne was at a three-quarter high in the March quarter, reflecting the recent uptick in cement prices.

While cement makers continued to raise prices in both April and May, it may not be enough to mitigate the total cost increase, they said. Prices were raised by around ₹20 per 50 kg bag in April, with another round of ₹10-15 per bag being implemented in May. “(With) the blended cost of fuel, diesel price hike, bags, gypsum, and the rest of all the stuff, I am really looking at a cost inflation of close to ₹200 per tonne,” said Jayakumar Krishnaswamy, MD, Nuvoco Vistas Corp. “And hence, at ₹200 per tonne with the kind of price increase, net of GST, there is still going to be some gap.”SLOWING CAPEX
Adani Cement, the country’s second largest producer of the construction material, pushed back its target of 155 million tonne production capacity in a bid to recalibrate costs. “I think maybe what I would say is that the target plans of FY28, it could move a year or two, let us say, on a safer side, I would say FY30,” said Vinod Bahety, chief executive officer.