Whalesbook
Margin Pressure from Energy Costs
The Indian cement industry is experiencing significant margin compression. Power, fuel, and selling expenses, which make up about half of operating costs, are highly sensitive to crude oil price swings, especially with current Middle East tensions. Analysts predict EBITDA per tonne could fall to ₹820-870 in FY27, down from an estimated ₹950-980 in the previous year. This is due to sharp increases in petcoke prices, up 19% month-on-month in April 2026, and rising diesel costs.
Competition Limits Price Hikes
Companies tried to counter rising costs with price increases of ₹10-12 per bag in April 2026. However, strong competition, excess production capacity, and the typical slowdown in construction during the monsoon season are preventing full cost pass-through. Historically, the second quarter sees lower factory use due to rain, making it hard for cement makers to raise prices further to cover increased freight and packaging expenses.
Risks from Energy and Logistics
Cement production's heavy reliance on energy makes it vulnerable to prolonged inflation, especially when a weaker rupee makes imported fuel more expensive. While companies are using more thermal coal to offset petcoke costs, their overall fuel costs remain exposed to global market shocks. With over 70% of cement transported by road, diesel price hikes also directly impact margins. Companies adding new capacity face the dual challenge of high capital spending and defending market share in a slow season. It's important to note that some recent profit increases were due to tax changes, not core business growth.
Outlook for Demand
Despite current challenges, factors like government infrastructure spending and steady rural housing demand offer a stable foundation. Leading companies are focusing on completing existing projects and managing costs efficiently, rather than launching new ones. Industry leaders are cautiously optimistic, expecting 7-8% volume growth for FY27, provided the sector can successfully manage current inflation and the seasonal dip in demand.