Cement Sector Update - Higher Input Costs Dent Margins Sharply: Nirmal Bang

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Nirmal Bang Report

Q2 FY22 earnings of cement companies were characterized by higher input costs and flat pricing.

As the demand was dismal due to seasonality, higher input costs could not be passed on to the consumers and hence there was a sharp decline in margins.

The sector (aggregate for 16 companies) reported its lowest Ebitda margin in the last 8 quarters at 21%, down 460 basis quarter-on-quarter.

Key factors contributing to margin pressure were:

(1) elevated coal and petcoke prices

(2) availability issues for domestic coal

(3) higher diesel prices

(4) higher packing costs due to elevated crude prices and

(5) higher other expenses (due to maintenance shutdowns and higher advertising & packing costs).

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