Whalesbook
Profitability Under Pressure
Indian cement manufacturers are bracing for a significant contraction in operating profitability for fiscal year 2027. Projections indicate a 10-15% decline in per-tonne earnings, falling to approximately ₹820-870 from an estimated ₹950-980 in FY26. This anticipated squeeze is primarily driven by escalating power, fuel, and logistics expenses, with ongoing geopolitical instability in West Asia acting as a major catalyst for cost increases.
Fuel and Logistics Costs Climb
Power and fuel, along with selling expenses, make up 50-55% of cement companies' operating costs. Conflict in the Middle East has raised global crude oil prices, directly impacting essential inputs like petcoke and diesel. This price volatility pressures cement producers because they rely heavily on coal and petcoke for energy and on road transport for distribution. Petcoke prices rose sharply by 19% in April 2026, and diesel prices increased by ₹3.9 per litre in May 2026. ICRA forecasts an average crude oil price of $95 per barrel for FY27, up from an estimated $72 in FY26.
Price Hikes Offer Limited Relief
To offset rising operational costs, cement companies plan to implement price increases of 6-8%. However, these hikes are unlikely to fully cover the projected 10-12% increase in power and fuel costs. The Indian cement industry faces significant overcapacity, with utilization rates around 65-70%, which limits their ability to raise prices. Past attempts to increase prices by ₹15-20 per bag have largely been reversed due to market resistance.
Sector Outlook and Competitive Factors
Major Indian cement players like UltraTech Cement, Ambuja Cements, and Shree Cement are navigating this challenging environment. The sector is expected to see volume growth of 6-8% in FY27, supported by infrastructure and housing demand, but profitability remains a key concern. Crisil Intelligence projects operating margins to decline by 150-200 basis points in FY27 to 16%-18%, from 18%-20% in FY26. Companies more reliant on imported fuels will face greater challenges in passing on costs. The industry's use of imported petcoke may decrease as companies switch to more competitive domestic thermal coal.