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regular-article-logo Tuesday, 21 May 2024

Cement faces margin pressure

Outlook on operating margin, remains clouded with prices of key inputs coal and pet coke remaining elevated

Our Special Correspondent New Delhi Published 23.02.23, 01:29 AM
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Cement demand in the country is expected to continue to grow with a 7 to 9 per cent rise next fiscal to 425 million tonnes. The sector’s demand grew 11 per cent yearon-year in the first 10 months of this fiscal, led by rapid execution in infrastructure projects and a strong traction in the real estate and rural affordable housing segments.

However, the outlook on operating margin, which has been under pressure, remains clouded with the prices of key inputs — coal and pet coke — remaining elevated. This will have a bearing on the credit risk profiles of players, a Crisil Market Intelligence and Analysis report said.

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The next fiscal would again see the infrastructure and affordable rural housing segments propelling growth. The highest traction is expected from roads, where the total outlay for the ministry of road transport and highways and the National Highways Authority of India has risen 25 per cent and 14 per cent, respectively, year-on-year.

Hetal Gandhi, director of research, Crisil Market Intelligence and Analytics, said: “A strong demand is likely to lead to the incremental sales volume of 30-35 MT in fiscal 2024 after a cumulative rise of 68 MT over fiscal 2022 and 2023. This translates into a demand growth of 30 per cent since fiscal 2021, taking the total volume to ~425 MT in fiscal 2024.”

Koustav Mazumdar, associate director — research, Crisil Market Intelligence and Analytics, said: “A meaningful recovery in operating margin will depend on sustained softening of fuel prices. Conversely, an increase in input prices could delay recovery and can impact margins and credit profiles of cement players.”

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