Rising energy cost can hit cement makers profit margins: Icra

Rising energy and freight costs due to higher pet coke, coal and diesel prices during the first half of FY2017-18, can hit the profitability margins and debt metrics of cement companies in the coming quarters, rating agency Icra said on Wednesday. 

While pet coke prices grew by 32 per cent in the first half of FY2018 on a year on year (Y-O-Y) basis, coal saw a jump of 44 per cent on year resulting in higher power and fuel expenses, ICRA Ratings Senior VP and Group Head, Sabyasachi Majumdar said. 

"Further, with nearly 7 per cent increase in diesel prices, most cement companies witnessed higher freight expenses in H1 FY 2018," he noted. 

Due to increase in prices, he said, industry players ability to secure increase in cement prices remains critical from the profitability perspective. 

"While most of the large cement companies (barring south-based companies) have been able to pass on the rising costs, given Icra's expectation... there could be pressure on the profitability margins and debt metrics of the cement companies in the coming quarters," the rating agency said. 

Majumdar said higher power, fuel and freight costs in FY2018 is likely to continue. 

In addition, Icra said the Supreme Court has banned the usage of pet coke in a few northern states to curb the rising pollution levels in November 2017, increasing most cement companies dependence on coal. 

Although it has has been relaxed in December 2017, the future ban on pet coke and its consequent adverse impact on the cost structure of cement companies cannot be ruled out, it added.