Price hike to hurt cement firms’ margins further

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Mumbai, Jun 4: Fuel price hike has come as yet another burden for the cement industry which is already reeling under high input costs. The industry is likely to take another hit on its margins due to a hike in fuel prices, as cement manufacturers had earlier decided to hold the prices for the next 2-3 months as a move to mitigate inflation pressures.

The government on Wednesday decided to raise petrol prices by Rs 5 per litre and diesel by Rs 3 per litre that will result in freight charges going up. Currently, freight charges are about Rs 1.40 per tonne per km with an average of about 450-500 km for a company normally.

“The fuel price hike will have a cascading impact on all input costs. Cement prices will be impacted by about Rs 3-4 per 50 kg bag, and if we are not able to pass on the hike, it will definitely impact our margins,” said KC Birla, CFO, UltraTech Cement Ltd.

The cement industry is now in a fix whether to pass on the hike to consumers or absorb the increased cost. Experts believe that looking at the current scenario the possibility of passing on the increased price is very less.

Says HM Bangur, vice-president, Cement Manufacturers Association (CMA) and CMD, Shree Cement, “It will take at least a week to see the impact of the fuel price hike on the freight cost. This will depend on the transporters—how much they hike the price. Cement manufacturers depend on the transporters for transport as we don’t have this facility of our own. However, the margins will take a hit.”

The stock price of major cement companies on Wednesday were down on the Bombay Stock Exchange. Among the maximum losers include Saurashtra Cement (- 7.34%), Ambuja Cements Ltd (-5.46%), Mysore Cement (-3.87%), India Cements Ltd (-3.75%) and JK Lakshmi Cement (-3.08%), to name a few.