Cement Margins Face Squeeze as Input Costs Surge amid Volume Growth Outlook
Q1FY27 Earnings Preview: Fuel Costs Weigh on Cement Profitability despite Strong Volume Demand
The Indian cement industry is projected to achieve healthy volume growth in the June quarter, yet profitability remains under pressure. Nomura's Q1FY27 earnings preview indicates that escalating fuel and packaging costs are expected to offset the benefits of improved trade prices. The brokerage forecasts that the sector will deliver 6-7% year-on-year organic volume growth during the quarter, with strong demand continuing toward the end of the period.Average trade prices for cement saw a sequential improvement of 3%, reaching approximately Rs 326 per bag, thanks to price hikes amounting to around Rs 10 per bag. The West and North regions are highlighted as outperforming nationally on pricing, benefiting firms with substantial operations in these key markets.
Cost Headwinds from Global Conflict Drive Margin Decline
Despite improvements in sales prices, the industry faces significant cost headwinds due to geopolitical tensions. Nomura cited disruptions stemming from the West Asia conflict as a major factor affecting costs. Imported pet coke prices are reported to have increased by 12% quarter-on-quarter, while thermal coal prices rose by 17%.These rising input costs were compounded by movement in diesel prices during the quarter. As a result of these combined factors, operating cost per tonne is estimated to rise by 4% sequentially across Nomura's coverage universe. Consequently, EBITDA per tonne is forecast to decline by an average of Rs 50 quarter-on-quarter for the sector.
Company-Specific Outlook: Ambuja and UltraTech Cement Lead Resilience
Ambuja Cement stands out as a likely exception among peers, with Nomura forecasting a sequential improvement in its EBITDA per tonne. UltraTech Cement and Shree Cement are also expected to experience relatively milder margin declines compared to South-based companies. This relative resilience is attributed to stronger pricing power maintained by these firms in their specific key markets.The brokerage notes that while imported fuel costs have eased slightly from the quarterly average, input costs remain elevated compared to the previous quarter's levels. Nomura stresses that sustaining healthy margins will hinge on the industry's ability to maintain current price levels rather than relying on easing raw material costs.
Brokerage Maintains Buy Ratings Across Key Cement Players
Nomura maintains a 'Buy' rating across several leading firms, including UltraTech Cement, Ambuja Cement, Dalmia Bharat, Nuvoco Vistas, Ramco Cements, and Shree Cement. The company projects that volume growth will be robustly supported by the market dynamics observed during the quarter.In contrast, Nomura has retained a 'Reduce' rating on ACC. The overall sector is expected to experience volume gains driven by demand, yet input costs underscore the margin pressures confronting cement manufacturers in Q1FY27.
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