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Sharp decline of 51% YoY in OPBDITA/MT of cement companies to Rs 552/MT in Q2 FY2023 due to input cost pressures: ICRA •

Elevated input costs are likely to result in a decline in operating profit margins by 600-690 bps in FY2023 against a decline of 440-490 bps as per earlier estimates in April 2022 ICRA, in its recent report, has analysed the input cost pressure on expected operating profit margins in FY2023 for cement companies. Notwithstanding the volumetric growth, ICRA has revised the operating profit margins downwards by 250-310 bps in FY2023 when compared to the earlier estimates in April 2022 due to sustained cost[1]side pressures. The All-India cement volumes increased by 11% YoY at 187 million MT in H1 FY2023 supported by continued strong demand from rural housing and pick-up in infrastructure activity. Cement volumes are expected to grow by 7-8% in FY2023 to around 388 million MT (16% higher than pre-Covid levels of 334 million MT in FY2020) aided by demand from housing, both rural and urban, and the infrastructure sectors. Exhibit: Trends in OPBIDTA/MT Source: Financial results of cement companies, ICRA Research Despite the increase in the net sales realisations1 by 4%, the OPBIDTA/MT declined by 51% YoY in Q2 FY2023 to Rs. 552/MT primarily due to an increase in input prices – the power & fuel, raw material and freight costs are higher by 75%, 25% and 14% respectively. Commenting on the outlook on margins for FY2023, Ms. Anupama Reddy, Vice President & Co-Group Head, Corporate Ratings, ICRA, said: “The OPBIDTA/MT for H1 FY2023 stood at Rs. 761/MT, a YoY decrease of 39%. On a 1 ICRA’s sample includes ACC Limited, Ambuja Cements Limited, JK Cements Limited, JK Lakshmi Cement Limited, The India Cements Limited, The Ramco Cements Limited, UltraTech Cement Limited, Dalmia Bharat Limited, Birla Corporation Limited, Shree Cement Limited, Sagar Cements Limited, Heidelberg Cement India Limited 919 847 1048 1250 1115 875-925 775-825 1254 761 -2% -8% 24% 19% -11% -40% -30% -20% -10% 0% 10% 20% 30% 0 200 400 600 800 1000 1200 1400 FY2018 FY2019 FY2020 FY2021 FY2022 FY2023 (P) FY2023 (P)- Revised H1 FY2022 H1 FY2023 OPBIDTA/MT (Rs. /MT) Growth % (YoY) - RHS -11% revision due to sustained cost side pressures -39% -26% to -30% -17% to -22% www.icra.in YoY basis, the operating profit margins declined by 11.14 percentage points to 9.9% in Q2 FY2023 and by 672 bps to 13.5% in H1 FY2023. While the operating performance from Q3 FY2023 onwards is expected to show some improvement,supported by the possible price hikes by the cement companies, the OPBIDTA/MT for full year FY2023 is expected to decline by 26-30% to Rs.775-825/MT from Rs. 1115/MT in FY2022, given the high-cost fuel inventory and sustained cost side pressures. Hence, the expected OPBIDTA/MT is lower by 11% to Rs. 775-825/MT in FY2023 compared to earlier expectations of Rs. 875-925/MT in April 2022. Thus, the operating profit margins for the full year FY2023 are expected to decline by 600-690 bps compared to the earlier expected decline by 440-490 bps.” Click the below link to access our previous press releases on the sector: Cement companies to witness lowest operating margins in last seven years in FY2023 Operating margins of cement players slide by 390 bps in FY2022; high input costs likely to weigh on margins in FY2023 For further information, please contact: Media Contacts: Naznin Prodhani Head Media & Communications ICRA Ltd Tel: + (91 124) 4545300, Dir: + (91 124) 4545860 Email: naznin.prodhani@icraindia.com Shivendra Singh Deputy Manager - Media & Communications ICRA Ltd Tel: + (91 124) 4545300 Dir: + (91 124) 4545840 Email: shivendra.singh@icraindia.com © Copyright, 2022 ICRA Limited. All Rights Reserved. All information contained herein has been obtained by ICRA from sources believed by it to be accurate and reliable. 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