Rising fuel costs likely to weigh on cement makers' Q1 earnings

Mumbai: Increased costs of fuel, freight and packaging likely affected the profitability of cement producers in the first quarter, analysts say. This despite a 7-8% increase in demand due to a dry start to the monsoon season, which resulted in fewer rain-related disruptions to construction activities in June.

Most of the cost escalation was on account of the West Asia conflict that disrupted raw material supplies. While the March quarter saw a minimal impact because of the inventory that most companies were carrying, it would be more pronounced in the April-June results with costlier coal, pet-coke and fuel together pushing expenses up by 200-250 per tonne.

As a result, earnings before interest, tax, depreciation and amortisation (Ebitda) of companies are seen lower by 100-150 per tonne, or 12-15%, year-on-year, analysts said. Except for market leader UltraTech Cement, they expect cement companies to post a 30-50% lower net profit.


Guidance from most companies had already been cautious when announcing earnings for the March quarter, and this is expected to continue this time as well, especially as the pressure on costs mounts further. “We expect peak fuel cost inflation to flow through the P&L in Q2FY27, coinciding with the seasonally weak demand period,” analysts at Elara Securities wrote in a report. The September quarter is usually the weakest for cement producers given that monsoon rains slow down construction activities and demand for cement.

In the world’s second-largest consumer of the building material, commentary from companies is seen shifting from capacity addition, volume growth and higher market share in the last few years to cost mitigation and price hikes, which could help override the current cost pressures.

“Unlike previous attempts, current price increases appear to be receiving better industry-wide support as most large players recognise the necessity of protecting profitability amid rising input costs,” analysts at Axis Securities said. Certain regional markets, though, continue to lack pricing power given the continued competitive intensity, they said.

While price hikes taken by cement producers at the start of the June quarter were sustained, they had to be rolled back towards the end of the month. So, sustainability of price hikes taken this quarter remains a key monitorable.

“Companies may attempt a price hike in Jul'26 owing to peak fuel prices hitting in 2Q, but may not sustain given seasonally weak demand and supply-side pressure,” analysts at Antique Stock Broking said.

Capacity additions, especially at a rapid pace, typically tend to slow down companies’ ability to increase prices, even when costs are on the rise. Apart from several existing capacities moving to larger players, India has added at least 15% of its total production capacity in the last five years alone, as an impetus on infrastructure is seen keeping demand robust in the medium term. Most large players are also pursuing both greenfield and brownfield capacity expansions.