Cement Output Rises but Higher Input Cost Cut Operating Margins
A sharp pick-up in infrastructure activity from mid-December and strong rural demand would lift cement production by 12% in FY22, ICRA Ratings said on Thursday. This would be a sharp recovery for the sector after the demand moderation witnessed in November due to erratic monsoons. The strong production growth in cement would also find support from the low base effect of the previous year when economic activity shrunk due to the pandemic. All-India cement production increased by 22% Y-o-Y in Q2 FY22 and 10%compared to Q2 FY20 (pre-covid) supported by the strong demand from housing segment and pick up in infrastructure activities. For the seven months of FY22, production is higher by 5% compared to pre-covid levels. Cement companies, however, have been impacted by rising input costs which are likely to have an adverse bearing on the margins, the ICRA report said. “The sales volumes of ICRA’s sample were higher by 7 per cent Y-o-Y at 62 million MT in Q2 FY22 and by 22 per cent Y-o-Y at 124 million MT in H1 FY22. Given the increase in the input costs such as coal, petcoke and diesel, the cement companies have undertaken prices hikes and the net sales realisations witnessed an increase of 5 per cent Y-o-Y in H1FY22. Despite the increase in the net sales realisations and higher sales volumes resulting in better absorption of fixed costs, the OPBIDTA/MT declined by 12 per cent Y-o-Y to Rs. 1137/MT in Q2 FY22 and by 3 per cent Y-o-Y to Rs. 1257/MT in H 1FY2022 due to an increase in the input costs, after reporting highest ever OPBIDTA/MT of Rs. 1378/MT in Q1 FY2022," said Anupama Reddy, assistant vice-president & sector head, Corporate Ratings, ICRA. Key input costs such as raw material, power & fuel, and freight witnessed an increase in H1 FY2022 by 16%, 26% and 7% respectively on a Y-o-Y basis, the report said. Raw material costs increased due to higher additive prices such as slag, gypsum and inward freight costs due to an increase in diesel prices. The increase in the power and fuel cost/MT was due to the rise in coal and pet coke prices. ICRA said that coal prices increased by 103% Y-o-Y and pet coke prices by 81% in H1 FY22. The impact of the elevated fuel prices has moderated to an extent with the improving share of green power and efficiencies by cement companies.
Tags : ALLIED Cement output higher input cost operating margins ICRA Ratings