Investors dumped cement shares on Monday after the Supreme Court banned the use of key raw material — pet coke and furnace oil — in Uttar Pradesh, Rajasthan, and Haryana. The move, aimed at curbing pollution, could impact their earnings by as much as 8 per cent in 2017-18.

Companies like JK Lakshmi, JK Cement, Shree Cement, Birla Corp, ACC, Ambuja, UltraTech and India Cement are likely to be the most impacted, said analysts.

"JK Lakshmi, JK cement and Shree cement are likely to see impact of 8 per cent, 6 per cent, 5 per cent, respectively, on overall EBITDA due to the impact of cost push," said Gautam Duggad, head of research-institutional equities, Motilal Oswal Financial Services. "Other companies, such as Birla Corp, ACC, Ambuja, UltraTech and India Cement, will take a hit of about a percent in EBITDA.



Shares of cement companies fell between 3 per cent and 5 per cent on Monday with JK Lakshmi and Shree Cement dropping almost 5 per cent each.

The prohibition of usage of pet coke in the states will result in higher fuel cost for cement companies operating out of these states. Substitute fuel is at least 25 per cent costlier than petcoke, said analysts.

"The petcoke ban would result in companies shifting to imported coal, which would increase power & fuel costs for plants by 25-30 per cent, said Bhoomika Nair, analyst, IDFC Securities. "We expect companies to raise cement prices to offset the impact of higher prices."

Shree Cement would be impacted the most. Analysts estimate a 7 per cent impact on its FY 2018 estimated earnings. Ultratech, which has 19 per cent of its capacity in impacted areas, will likely take a 3 per cent hit on FY 2018 estimated earnings.

Earnings of ACC and Ambuja will drop by 1 per cent due to the Supreme Court decision, Cement prices were weak in the northern region for the past few weeks due to restriction in construction in NCR region, owing to severe pollution.

The other risk for cement makers is the increase in cost of imported coal due to higher demand.

"While our analysis suggests the additional demand for imported coal will increase by 7-8 mt, it is not likely to push the prices of imported coal substantially. But if petcoke ban is levied across the country, additional demand for imported coal could push up the prices of imported coal," said Gautam Duggad of Motilal Oswal.

The apex court has directed all state governments to consider taking similar measures of prohibiting usage of pet coke in order to control pollution. The petcoke ban, however, will not impact cement production.