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NEW DELHI : High input costs have resulted in a decline in operating margins for cement companies by 390 bps in FY2022, according to a recent report by ICRA.
The report analyses the input cost pressure on operating margins. Notwithstanding the expected volumetric growth and net sales realisations in FY2023, the operating margins are expected to further decline in FY2023 for cement companies.
The All-India cement production is higher by 19% Q-o-Q and 9% Y-o-Y at 104 million MT in Q4 FY2022.
Production has increased by 21% Y-o-Y at 361 million MT in FY2022 and is higher by 8% than pre-Covid levels of FY2020 supported by continued strong demand from rural housing and pick-up in infrastructure activity.
Cement volumes are expected to grow by 7-8% in FY2023 to around 388 million MT aided by demand from housing, both rural and urban, and the infrastructure sectors.
“Despite the increase in the net sales realisations by 5%, the OPBIDTA/MT declined by 11% Y-o-Y in FY2022 to Rs. 1,115/MT primarily due to an increase in input prices – the power & fuel, raw material and freight costs are higher by 34%, 7% and 3% respectively. After reporting the highest ever OPBIDTA/MT of Rs. 1,378/MT in Q1 FY2022, it witnessed a declining trend Q-o-Q in Q2-Q3 FY2022 and remained under pressure in Q4 FY2022,” said Ms. Anupama Reddy, Vice President & Sector Head, Corporate Ratings, ICRA.
“The significant increase in fuel costs resulted in a decline in OPBIDTA/MT by 24% Y-o-Y to Rs. 883/MT in Q3 FY2022 and by 20% Y-o-Y to Rs. 965/MT in Q4 FY2022. The operating margins declined by around 390 bps to 20.8% in FY2022. The input costs are likely to remain elevated in the near term, and are expected to exert pressure on operating margins, resulting in further decline by 440-490 bps in FY2023,” Reddy added.
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