Cement margins to rise 250 bps on higher realisation, stable cost in FY26: Crisil report

New Delhi [India], December 13 (ANI): Improved realisations driven by volume and premiumisation amid steady selling prices and cost of inputs will lead to a 250-300 basis points (bps) growth in the profitability of cement manufacturers this fiscal, according to Crisil.
Cement volume is up 6.5-7.5 per cent year-on-year this fiscal, up from 5 per cent last fiscal.
In the first half of this fiscal year, volume grew a moderate 5 per cent year-on-year, rebounding after flatlining in the same period last fiscal year.
In the second half of this fiscal year, volume is expected to rise 8-9 per cent year-on-year, driven by pent-up demand from the first half and improved liquidity, the financial services and analytics firm said earlier this week.
Average Pan-India cement prices will remain rangebound at Rs 354-359 (+/- 1 per cent) per 50 kg bag, the Crisil report has forecast.
The reduction in the goods and services tax (GST) rate from 28 per cent to 18 per cent will exert downward pressure on retail prices.
However, premiumisation will offset the pressure and, together with higher demand, aid an improvement in realisations for the manufacturers.
Crisil analysed 14 major cement manufacturers, accounting for 85 per cent of the industry's revenue.
Sehul Bhatt, Director, Crisil Intelligence, said, "The average pan-India cement prices saw a modest 3% on-year increase during the first half of this fiscal. However, we anticipate the full impact of the GST reform will be realised in the third quarter, leading to a 4-5% decline in retail prices in the second half of the fiscal year. Despite subdued pricing, the industry is poised for higher realisations this fiscal, driven by healthy volume growth."
Excluding GST, cement prices are expected to rise 3-4 per cent year-on-year in the coming quarter. However, the reduction in GST is expected to lead to a decline in overall prices.
The 14 manufacturers saw a 5 per cent increase in realisations in the first half of this fiscal. The momentum is expected to slow in the second half, with realisations growing a modest 0-2 per cent. Consequently, the full-year average improvement is expected to be 2.5-3.5 per cent.
In terms of regions, healthy demand prospects and a low base are expected to support price recovery in the east and south, leading to prices inching up 0-2 per cent in those geographies this fiscal, after declining 12 per cent and 7 per cent, respectively, last fiscal. Prices in the other regions, however, are expected to dwindle 2-3 per cent, Crisil noted.
Meanwhile, on the cost side, power and freight costs, which together comprise 54-55 per cent of the total expenses, are projected to fall 2-3 per cent and 1-2 per cent, respectively, this fiscal, after declining 12-13 per cent and 2-3 per cent, respectively, last fiscal.
Raw material costs are likely to remain elevated because of higher limestone prices. However, overall costs are expected to be stable, resulting in an expansion in operating margin to 18-20 per cent from 16 per cent last fiscal.
All said, any upswing in energy prices owing to geopolitical uncertainties, regulatory changes or natural calamities will bear watching, the Crisil report concluded. (ANI)