Monsoon, excess supply may shrink cement cos' margins 9%

MUMBAI: Cement manufacturers’ margins will fall 6-9% in June-September due to the combined effect of oversupply and a dip in demand in monsoon.

Margins are likely to be at 26-27% in the July-September quarter, against 32-36% last year, company executives and sector analysts told ET.

Large companies with a pan-India presence recorded a 31% margin in the January-March quarter, which rose to 33% in April-May due to a price increase across regions. “Lower cement prices and higher input costs will put margins under pressure for cement makers,” said Rupesh Sankhe, research analyst with Angel Securities.

Regional players will be the worst hit, he added. Margins will be under pressure in the medium term as the industry may face a surplus, leading to subdued realisations and mounting cost pressures, added Ravindra Deshpande, research analyst at Elara Securities.

Cement makers, however, feel the margin pressure will be temporary. “Margins may come under pressure in the monsoon due to lower consumption,” said Shree Cement managing director, HM Bangur. He added that demand and prices will stabilise during the festival season.

Cement prices have already fallen by Rs 15-20 per bag in certain pockets last month, said Falgesh Sanghvi, assistant vice-president, research wealth management, at Unicon Financial Intermediaries.

Prices are expected to soften further to Rs 230 from Rs 255 in Mumbai next month. In the national capital region, prices are likely to fall to Rs 210 from Rs 230.

The industry will add 30 million tonnes in June-September, taking the total capacity to 270 million tonnes. However, cement makers are hopeful that a surge in demand will take care of the excess supply.