Cement maker profitability to crater 150-200 bps on dearer energy

Cement makers are expected to see their operating margin fall 150-200 basis points (bps) on-year to 16-18% this fiscal, after rising 260-280 bps last fiscal, as soaring energy prices amid the West Asia conflict increases power and fuel cost.

A surge in crude and pet coke prices will increase power and fuel cost, which accounts for 26-28% of total cost, by 10-12% on-year.

Brent crude oil prices, which rose 46% on-month to average ~$104 per barrel in March 2026 and 26% sequentially in the final quarter of last fiscal, are poised to remain elevated and volatile this fiscal, averaging $82-87, up 21-23% on-year.

As a result, prices of international pet coke, which rose 13% sequentially last quarter, are set to increase as well. International thermal coal¹ prices, which rose ~8% on-year last quarter, are expected to remain range-bound at $80-85 with upside bias as opposed to the declining trend witnessed in earlier three fiscals.

These price estimates are contingent upon a gradual easing of the West Asia conflict, with seaborne traffic expected to normalise starting May 2026.

While retail diesel prices have held steady, industrial diesel prices have jumped by ~25% in March which is likely to have a cascading effect on raw material procurement costs.

Says Sehul Bhatt, Director, Crisil intelligence, "Geopolitical disruptions will intensify cost pressures for cement makers in the first half this fiscal. A surge in energy prices, which will have a pronounced impact on power and fuel expense, and a moderate increase in raw material and freight cost will push total cost up 4-6% this fiscal."

Cement manufacturers are likely to partially pass on the increased expenses to end-users by hiking cement prices 1-3% on-year to Rs 355-360 per bag this fiscal.

Cement demand is expected to grow at a steady pace of 6.5-7.5% this fiscal, primarily driven by infrastructure segment and industrial and commercial segment. However, commissioning of additional capacity and heightened competition will limit a further uptick in cement prices.

Says Kinjal Shah, Manager, Crisil intelligence, "While cement prices will be increased to mitigate the impact of higher cost to some extent, there will still be a dent on profitability. With steady demand growth and price uptick, realisation of players is expected to improve a moderate 2-4% this fiscal, which will offer some respite."

The dual tailwinds of higher increase in ex-GST prices and a growing trend of premiumisation are likely to aid improvement in player's realisation. Although higher cost to erode margins.

Along with the impact of geopolitical uncertainties on energy prices, the other factors that will bear watching are pace of construction in infrastructure sectors, availability of labourers and monsoon pattern.

¹ Average of Australian, South African and Indonesian coal FOB prices