Rise in input costs exert pressure on manufacturer’s profitability: ICRA
The total costs of cement manufacturers have risen over the last few months as the prices of major input materials – coal, pet coke and diesel are on an increasing trend, resulting in higher power and fuel and freight expenses.
The rise in these costs which account for 50 to 55 per cent of total costs has been exerting pressure on profitability of industry players which as per an ICRA note is bound to adversely reflect in Q4 FY2021 performance.
On the input costs front, the increase in the coal prices in the recent months is majorly driven by the higher demand from China and other Asian countries. The price of diesel and pet coke increase in line with crude oil prices. The recent surge in oil prices led to increase in pet coke prices by 73 per cent year-on-year and 29 per cent quarter-on-quarter in Q4 FY21 and diesel prices by 20 per cent year-on-year and 10 per cent quarter-on-quarter.
Rajeshwar Burla, VP and Co Group Head, ICRA said, "The cement companies have undertaken price hikes by around 7 per cent year-on-year in March 2021 to pass on the increase in the power and fuel and freight expenses. However, the EBIDTA/MT is expected to contract in Q4 FY21 by around 8.7 per cent quarter-on-quarter to around Rs. 1,148/MT."