The cement makers are expected to post operating margin of Rs 925-950 per tonne in fiscal 2027, when compared to Ra 1,000 per tonne in fiscal 2026, Crisil Ratings said based on its analysis of 18 companies, which account for nearly 90 per cent of domestic cement capacity.
Operating margin improved sharply in fiscal 2026 to Rs 1,000 per tonne due to higher realisations, the firm noted.
The momentum in cement prices has continued into the first quarter of this fiscal and adjusted for the reduction in goods and services tax (GST) rates2 prices are likely to rise 1-3 per cent during the fiscal, the agency said.
The margin impact will be driven mainly by higher power and fuel costs, which account for about 30 per cent of total costs, as petcoke and imported coal prices have surged amid the geopolitical uncertainties, Anand Kulkarni, Director, Crisil Ratings, said.
Freight costs, accounting for about a quarter of total costs, are also likely to remain elevated because of higher diesel prices. The hit will be harder in the first half, before easing commodity prices help moderate cost pressures later in the year, he added.
Crisil said increasing adoption of green energy by cement makers should partly cushion these cost pressures.
Green energy now accounts for 35-40 per cent of total electricity consumption. The impact on profitability would have been higher had cement makers not diversified their energy mix, it noted.
“Despite softening profitability, operating cash flows of cement makers should remain resilient on the back of steady 6-7 per cent demand growth this fiscal,” Sehul Bhatt, Director, Crisil Intelligence, said.
He noted that Infrastructure accounts for about one-third of total cement consumption, and higher government spending should support project execution and cement demand.
“This is expected to offset weaker rural housing demand, which accounts for around 30% of demand, due to pressure on agricultural incomes arising from a likely below-average monsoon,” Bhatt said.
Urban housing demand is expected to improve this fiscal, supported by conducive home-loan rates and a strong pipeline of Pradhan Mantri Awas Yojana-Urban projects under construction. Demand from the industrial and commercial segment is also likely to remain healthy, Crisil said.