Inflationary Woes: High fuel cost to raise cement prices

Growth of real estate as well as infrastructure sectors is expected to take a hit, as prices of cement are expected to rise further on the back of high energy costs.

Notably, the Russia-Ukraine crisis has triggered a massive spike in crude oil, natural gas and coal prices.

It is feared that increase in prices of cement will impact the ongoing infrastructure projects and slowdown the new ones. Moreover, the rise will be detrimental to the Centre’s plans for a fast-paced economic recovery via FY23 budget Capex.

The BE Capex is intended for infra creation, however, the rising cost might make it insufficient for all the planned projects.

“Increasing input costs, particularly coal and diesel, are putting pressure on cement makers and would necessitate price hikes,” said Nitesh Jain, Director, Crisil Ratings.

According to Khushbu Lakhotia, Associate Director, India Ratings and Research: “Power and fuel costs as well as freight and forwarding were earlier expected to have peaked in 3Q or 4Q of FY22, but the recent surge in input costs would require an increase of around 25 per cent in cement prices to maintain profitability levels, which is unlikely despite the increases in March and further hikes expected in April.

“Most companies carry fuel inventory for 2-4 months and any meaningful impact would be visible only in 1QFY23.”

Rajesh Ravi, Institutional Research Analyst, HDFC Securities, said: “We expect cement prices to go up by Rs 20-50 per bag over the next 1-2 months. There is no other way to protect the margins. The Indian cement industry has already worked on multiple cost levers. And these efforts will further add to margins over next 5-10 years.

“However, in the short term, the extra-ordinary fuel cost inflation needs major cement price hikes. Given that the industry is more consolidated today and even demand outlook is robust, price hike can be effected.”

(Rohit Vaid can be contacted at rohit.v@ians.in)

20220312-201603

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