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Profitability of cement companies set to fall by 15% in FY23: Crisil

27 Sep 2022 Evaluate

Rating agency Crisil in its latest report has said that the operating profitability of cement companies is set to fall by 15 per cent year-on-year to Rs 900-925 per tonne this fiscal (FY23), adding to the pain of a 9 per cent decline last fiscal, as an increase in realisations will not be enough to offset the increase in prices of coal, petcoke and diesel that has pushed the average cost of production higher. 

However, the report said 17 per cent demand growth in cement demand during the first quarter, albeit on the low base last fiscal, offers a silver lining, saying though growth may taper in subsequent quarters, and print in at 8-10 per cent for the full fiscal, it will still be the highest since fiscal 2019. On credit profile, it said higher demand will mitigate the impact of lower profitability on absolute operating profit and cash accruals of cement makers.  Demand from the infrastructure segment will be aided by government spending, while industrial/commercial demand will be driven by growing investment in data centres and warehousing, and of source the low base. Off-take from the housing segment is expected to grow 5 per cent, taking overall volume growth to 8-10 per cent.

According to the report, the eastern markets are leading the demand drive with a 13-14 per cent uptick, largely on a lower base, followed by the central and southern regions at 10 per cent each, driven by infra projects. The northern and western markets -- relatively more developed in the rural-urban mix as well as infrastructure -- may see mid-single-digit growth. As for production cost, petcoke prices remain higher than last year's average despite softening in recent months and so is imported coal. Power and fuel cost, accounting for around 30 per cent of production cost, is likely to rise by Rs 300 per tonne this fiscal and freight cost by Rs 10-15 per tonne, tracking diesel prices that remain high.

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