Cement makers face a profit decline in the first quarter of FY27 as rising fuel, freight, and packaging costs offset a 7-8% increase in demand. Investors should watch for the sustainability of price hikes as companies struggle to pass on expenses during a seasonally weak period.
Cement companies in India are bracing for a challenging first quarter in the current fiscal year as input cost pressures intensify. Rising prices of coal and pet-coke, alongside higher freight expenses, are expected to weigh heavily on profit margins. Analysts project that earnings before interest, tax, depreciation, and amortisation (EBITDA) may decline by 12-15% compared to the same period last year. For many producers, this could translate into a net profit drop ranging between 30% and 50%.
Impact of Global Supply Chain Issues
The current cost environment has been worsened by supply chain disruptions originating from the ongoing conflict in West Asia. These factors are leading to an estimated increase in operational expenses of ₹200-250 per tonne. While cement demand has shown resilience with a 7-8% year-on-year growth during the quarter—partly due to a dry monsoon that allowed construction work to continue through June—this growth is not expected to be enough to protect company profitability.
Strategic Shift to Pricing and Cost Control
With profit margins under pressure, the focus across the industry has shifted away from aggressive capacity expansion. Instead, manufacturers are prioritizing price increases and stricter cost management. While some large players have successfully implemented price hikes, the consistency of these increases is uncertain. Industry data suggests that initial price adjustments seen earlier in the quarter faced challenges, with some rollbacks reported by the end of June. Competitive intensity in specific regional markets continues to limit the ability of smaller players to sustain higher prices, even when they aim to pass on rising input costs.
Outlook for the September Quarter
Investors should be aware that the pressure on profitability may continue into the next quarter. The July-September period is historically the weakest for the cement industry in India due to the monsoon season, which typically slows down construction activity and dampens demand. Brokerage reports indicate that the full impact of peak fuel cost inflation is expected to appear in company financial statements during this period. The ability of manufacturers to maintain pricing discipline while demand remains seasonally soft will be a key factor in determining their earnings performance. While long-term demand drivers such as large-scale infrastructure development remain in place, short-term earnings volatility is likely to persist until input costs stabilize or pricing power improves across the sector.