India’s cement industry is set to face a notable squeeze on profitability in the current financial year as rising energy costs erode margins, according to a report by Crisil Intelligence.
The report projects that operating margins for cement companies will fall by 150–200 basis points year-on-year to 16–18 per cent, reversing last year’s expansion of 260–280 basis points.
The pressure on margins is largely driven by a surge in energy prices amid geopolitical tensions in West Asia. Power and fuel expenses—typically accounting for 26–28 per cent of total production costs—are expected to rise by 10–12 per cent year-on-year due to higher prices of crude oil, pet coke, and thermal coal.
Crisil Intelligence noted that Brent crude has climbed sharply in recent months and is expected to remain elevated and volatile, averaging between USD 82 and 87 per barrel this fiscal. In addition, industrial diesel prices have increased by around 25 per cent in March, further pushing up logistics and raw material costs.
According to Sehul Bhatt, Director at Crisil Intelligence, geopolitical disruptions are likely to keep cost pressures elevated in the first half of the fiscal year. Overall production costs are projected to rise by 4–6 per cent due to higher energy prices, along with moderate increases in raw material and freight expenses.
Cement manufacturers are expected to respond with price hikes of 1–3 per cent year-on-year, taking average realizations to around ₹355–₹360 per bag. However, competitive pressures and ongoing capacity additions are likely to limit the scope for larger increases.
Despite margin headwinds, cement demand is expected to remain resilient, growing at 6.5–7.5 per cent this fiscal, supported by infrastructure development and steady industrial and commercial activity.
While pricing gains and stable demand may support revenues, Crisil Intelligence noted that they are unlikely to fully offset rising input costs. Premiumisation trends and higher ex-GST prices could offer some support to realizations, but not enough to restore margins to previous levels.
The report flagged key risks to the sector outlook, including developments in West Asia, the pace of infrastructure execution, labour availability, and monsoon performance.
(With inputs from ANI)