How rise in coal, diesel prices may impact profit margins of cement companies.

Due to rising prices of pet coke, coal and diesel, cement firms in India may face pressure on their profit margins in the near term, PTI reported citing ICRA report. In its monthly update on India’s cement sector, rating agency said that an increase in coal and pet coke prices and increase in diesel prices in the near term are likely to continue to put pressure on the profit margins and debt metrics of the cement companies.

 “Hence, the ability of the industry players to secure increases in cement prices remains critical from the profitability perspective,” PTI reported citing ICRA’s senior vice president Sabyasachi Majumdar. 

In the financial year 2017-18, diesel prices were higher by 6.9 per cent year-on-year and coal prices were higher by 24 percent. The prices of pet coke surged in Q1, Q2 and Q3 of FY18 by around 54, 16 and 20 percent, respectively, PTI reported citing report. In December last year, the central government hiked the import duty on pet coke from 2.5 percent to 10 percent. 

“The FY19 budget also provides support in this direction with higher rural credit, increased MSP, increased allocation for rural, agricultural and allied sectors, along with continued focus on the PMAY and infrastructure investments,” PTI reported citing Majumdar. 

ICRA expects the demand growth to be moderate and industry’s capacity utilisation level at near to 65 percent over the medium term in wake of sand availability issues continuing to impact demand in Rajasthan, Bihar and Tamil Nadu. 

Source: financialexpress.com