Cement sector Q2 margins plunge on higher power, fuel costs - firms pin hope on demand, rural recovery

The cement companies across the board witnessed a steep decline in their margins during the second quarter of the financial year 2022-23 (Q2FY23), Zee Business research showed. It pointed out that the average margin slip of cement firms in Q2 was around 8 per cent.

According to Zee Business research analyst Arman Nahar, “The strong increase in power and fuel cost by the cement companies has impacted the Q2 margins adversely. The power and fuel cost in July-September quarter rose 42 per cent year-on-year (YoY) and 8 per cent quarter-on-quarter (QoQ)."

Nahar further said that the realization of cement companies was up 5 per cent YoY, while the same slipped by down 2 per cent quarter-on-quarter. They saw an average 9 per cent increase in volume.

Similarly, Mangesh Bhadang, Research Analyst at Nirmal Bang said, the key factors that led to the margin pressure were high coal and petcoke costs and inadequate increase in pricing. As per him, the Q2 cement results were characterized by the double whammy of higher costs and weaker realizations.

With respect to guidance and outlook, Nahar said that most of the cement companies’ management now trusts on demand revival and also believe infrastructure project/recovery in rural demand will benefit in the coming quarters, adding that Q2FY23 peaked out on energy costs.

As per Bhadang, Cement companies are consciously taking efforts and improvising as far as their fuel sourcing strategies and power costs are concerned, by using the most cost-effective sources of coal and switching to petcoke and increasing the usage of AFR (Alternate Fuels and raw materials).

Q2 Volume Growth YoY

The Ramco cement 22%

Shree Cement 18%

Damia India 14%

India Cement -4.5%

Positive Surprise

JK Laxmi Cement

Negative Surprise

India Cements

ACC

Birla Corp.

Ambuja Cements