Cement companies report highest ever OPBIDTA/MT in Q1 FY2022 despite cost side pressures: ICRA

ICRA expects the all-India cement production to report an increase by around 12% in FY2022, supported by the pent-up demand, rural housing demand and the pickup in infrastructure activity.

Sep 14, 2021 04:09 IST India Infoline News Service

Cement
The all-India cement production declined by 12% Q-o-Q to 82 million MT in Q1FY2022, owing to the state wise lockdowns on account of the second wave of Covid-19, which had an impact on demand in April-May 2021. However, it was higher by 54% Y-o-Y due to a lower base in April 2020 on the back of nationwide lockdown. The production in 4M FY2022 is lower by 2% compared to pre-covid levels (4M FY2020). ICRA expects the all-India cement production to report an increase by around 12% in FY2022, supported by the pent-up demand, rural housing demand and the pickup in infrastructure activity.

Commenting on the Q1FY2022 performance of the cement companies, Ms. Anupama Reddy, Assistant Vice President & Sector Head, Corporate Ratings, ICRA, says, “The sales volumes of ICRA’s samplewitnessed a decline of 20% Q-o-Q due to impact of second wave of Covid-19 pandemic, however, higher by 44% Y-o-Y.

"The net sales realisations witnessed an improvement by 4% Y-o-Y and 5% Q-o-Q on the back of the price hikes taken by cement companies in Q1 FY2022. These price hikes are majorly driven by the increase in input costs, primarily power and fuel expenses and freight expenses over the last few months. While the industry witnessed cost side pressures, the companies report highest ever OPBIDTA/MT at Rs. 1372/MT in Q1 FY2022, surpassing the previous peak of Rs. 1306/MT achieved in Q1 FY2021, majorly supported by the higher net sales realisations and the cost optimisation measures undertaken,” Anupama added.

Elaborating on the costs, the key input costs such as raw material, power & fuel and freight/MT witnessed an increase in Q1FY2022 by 26%, 26% and 9% respectively on Y-o-Y basis. The raw material costs increased due to higher additive prices such as fly ash and inward freight costs due to an increase in diesel prices and the increase in the power and fuel cost/MT was due to the rise in coal and pet coke prices. The coal prices increased by 154% Y-o-Y and the pet coke prices by 98% Y-o-Y in Q1 FY2022. The impact of the elevated fuel prices is moderated to an extent with the improving share of green power and efficiencies by cement companies.

“While the OPBIDTA/MT in Q1FY2022 surpassed the previous peaks, the elevated and rising input costs could exert pressure on operating margins, which are likely to decline by 200 to 230 bps in FY2022. The reliance on debt for new capacity additions in FY2022 is likely to be lower owing to the healthy cash generation and strong liquidity of the cement companies. The debt coverage metrics are expected to remain strong in FY2022,” Ms. Reddy added.

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