India’s cement sector is likely to see a significant earnings impact in FY27. An Elara Capital report points out that, coupled with rising oil and gas costs due to supply disruptions through the Strait of Hormuz, higher thermal coal and pet coke prices globally are key concerns for the cement sector. Their calculations project the sharpest hit to Q2 FY27 profits.
In the last 15 days, crude oil prices have increased by about 39 per cent. During the same period, prices of thermal coal and pet-coke in the international market have risen by 14 per cent and 18 per cent, respectively. While the immediate effect is visible in cement sector companies’ share prices, as large-cap and mid-cap cement stocks have declined by 12 per cent and 11 per cent, respectively, Elara Capital says the cost impact will be seen at its highest in the Q2 FY26 earnings report card.
Cement price hike possibilities
As fuel costs rise for the cement industry, companies are expected to pass on the higher costs to customers. Elara Capital says that the industry needs to increase cement prices by 1.8 per cent, about Rs 6 per bag, to offset the prevailing cost rise.
Historically, the cement industry has carried a 4.6 per cent price hike in the first quarter of the fiscal year. To offset current fuel inflation and meet FY27 estimates, the industry needs to raise prices by 6.4 per cent in Q1 FY27. However, such a spike in prices brings its own set of challenges, and historically, it has not worked in the industry’s favour.
Lessons from past
Cement history has seen similar circumstances in FY23 at the beginning of the Russia-Ukraine War. At the time, the industry implemented a 5.5 per cent price hike in Q1 FY23 in response to sharp fuel price increases.
However, the price hike proved unsustainable with the arrival of the seasonal demand dip in Q2 FY23. Ultimately, the cement industry resolved to cut prices by 5.3 per cent QoQ in the Q2 FY23.
The local advantage
As the fuel-cost pressure from ongoing external factors is uniform across all players, Elara Capital says some companies are better positioned due to a few local advantages. Firstly, companies with a higher share of renewable and other alternative energy sources are better positioned than their peers.
Secondly, companies with plants near coal mines, particularly in Madhya Pradesh and Chhattisgarh, are expected to have an advantage over their competitors.