Shree Cement reported a 17% volume growth for Q1 FY27, but rising fuel and freight expenses pressured profit margins. The company faced higher costs due to supply chain disruptions, forcing a shift to more expensive domestic coal.
Shree Cement Limited reported its financial performance for the first quarter of the 2027 fiscal year, highlighting a complex balance between sales growth and rising operational costs. While the company successfully increased its sales volume by 17% compared to the same period last year, its profitability took a hit due to external pressures.
The core issue affecting the company's margins during the quarter was the significant rise in power, fuel, and freight expenses. The company faced challenges in securing contracted supplies of pet coke and gypsum, partly due to ongoing conflicts in the Middle East. To maintain production levels, Shree Cement had to rely on domestic coal, which was both more expensive and of lower quality. This shift caused a drop in clinker conversion efficiency and forced the company to sell a higher proportion of Ordinary Portland Cement (OPC), which generally carries different margin profiles compared to blended or premium products.
Impact on Operating Margins
The company’s Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) per tonne, a key measure of operational efficiency, dropped to INR 1,024. This figure was lower than what many analysts had anticipated. While the company managed a 2.3% improvement in its blended net selling rate—the average price it receives per tonne—through better product pricing and a focus on premium offerings, these gains were not enough to offset the sudden increase in input costs.
Future Outlook and Operational Adjustments
Looking ahead, the management expects cost pressures to ease starting in the second quarter of FY27 as supply chains for pet coke stabilize. The company remains committed to its volume growth targets for the current fiscal year, projecting approximately 40 million tonnes in total sales, which would represent a 10% increase over the previous year. For investors, the ability of the company to return to historical margin levels will depend largely on the normalization of these energy supply chains and the company's ability to maintain its pricing power in a competitive market.
Moving forward, market participants will monitor whether the promised normalization of raw material supplies occurs as expected. Key factors to track in upcoming quarters include the volatility of coal and pet coke prices, the actual volume of premium product sales, and the company’s ability to manage its freight costs effectively as it expands its footprint.