Relief to cement manufacturers due to fall in imported coal prices

The operating performance of cement makers in the December quarter (Q3FY23) was not very exciting. According to analysts at JM Financial Institutional Securities Ltd, while there was a gradual improvement in Ebitda/tonne in Q3FY23, the metric is yet to fully recover from the previous high. EBITDA is short for earnings before interest, taxes, depreciation and amortization.

while it is true cement prices While not yet seeing the expected recovery, the easing of cost inflation pressures provides relief and augurs well for the operating performance of the sector. Note that increase in cement prices and cost pressure reduced operating margin to around 13.6% on 9MFY23, down 800 basis points year-on-year and lower than the decade average of 17-18%, Ratings agency Crisil Ratings Ltd said in a note dated 22 February. Analysts at Crisil Market Intelligence and Analytics say international petcoke prices have started declining from Q2 FY2023 onwards and are expected to decline further in Q3 along with crude oil prices.

While it remains to be seen how cement prices fare from here, softening fuel prices will help the sector’s earnings outlook to some extent. In Q4FY23, IDBI Capital expects Ebitda/tonne to improve sequentially to Rs 200/tonne for cement companies and industry Ebitda/tonne. This is likely to be aided by 10% year-on-year volume growth, 10% sequential decline in fuel cost and 1% sequential price increase.