Cement makers may end H1FY25 with higher raw material costs, weak pricing

As September draws to a close, cement makers in India may end the first-half of the current financial year (H1FY25) with higher than expected raw material costs, amid weak pricing, industry experts and analysts suggest.

Cement makers continue to focus on reducing power and fuel costs as expenses on raw materials such as limestone, fly-ash and others remain elevated. Meanwhile, attempts to increase prices have largely failed to hold.

“While raw material costs were anticipated to remain range-bound at the beginning of the financial year, with fly-ash and slag prices trending downwards, this trend did not sustain as costs continued to remain elevated in the first quarter (Q1FY25). Furthermore, higher limestone costs due to premium bids at auctions and increased inward freight prices are expected to drive raw material costs up by 5-7 per cent in the current financial year,” said Sehul Bhatt, director-research at CRISIL Market Intelligence and Analytics.

In a judgement passed in August, the Supreme Court upheld states' authority to impose additional taxes on minerals, including limestone, with effect from April 2005. Bhatt added that the impact of this judgement will remain a key monitorable.

In the meantime, cement makers are continuing to focus on keeping power and fuel expenses under check. For instance, a company like Nuvoco Vistas Corp expects completion of its project Bridge 2 — railway siding projects in Uttar Pradesh and Odisha — by December. The project, the company said, is aimed at driving cost efficiencies, including power and fuel costs.

Analysts with Nuvama in a September 9 report noted continued weakness in cement prices: “Prices decreased further across regions in August, thereby eroding industry-wide profitability.” The report further said, “Price hikes have been announced pan-India in the first week of September. It is clearly an attempt to prevent realisations from slipping further, although we believe price hikes may have to be rolled back by month-end due to weak demand.”

Ravleen Sethi, associate director, CareEdge, also noted that price hikes are not coming through, “however, we expect most large players to end FY25 with the same Ebitda per tonne as in FY24 on account of lower costs. All players are setting up WHRS (waste heat recovery system) and solar, in addition to fuel costs falling year-on-year (Y-o-Y)." Ebitda is earnings before interest, depreciation and amortisation.

Earlier this month, Dalmia Bharat (Cement) said it has agreed to pick a 26 per cent stake in Truere Surya Private to source solar power as a captive consumer for a capacity of up to 128 megawatt (Mw) in Tamil Nadu. Over the last one year, Dalmia’s close competitor UltraTech Cement has made multiple buys of a similar nature. In December, Ambuja Cements announced plans to invest Rs 6,000 crore to set up a 1,000 Mw renewable power unit for captive consumption to be completed by FY26.

Bhatt from CRISIL agreed at an overall level, total expenses for cement manufacturers are expected to decline by 2-4 per cent in FY25, driven by a decline of 11-13 per cent in power and fuel costs and a marginal dip of 1-3 per cent in freight costs. “However, the rise in raw material costs will limit the overall decline,” he added.