Cement Volumes Lag Demand as Rain and Costs Hit Margins

Market Trends

The construction materials sector is grappling with a widening gap between underlying demand and actual sales volumes. While industry-wide cement demand is expanding at a rate of 7-8%, heavy rainfall in key regions has restricted physical volume growth to just 3%. This divergence highlights a structural disconnect where macroeconomic appetite for building materials is outpacing the ability of producers to deliver product to sites.

Compounding this volume shortfall is a severe cost inflation environment. Analyst notes received today point to rising fuel costs, estimated at an increase of ₹70-80 per tonne, alongside broader pressures stemming from the West Asia crisis. These factors are squeezing EBITDA margins significantly, limiting operating leverage even in supportive pricing environments. The data indicates that despite healthy traction in North and Central India, the cost side of the equation is eroding profitability faster than revenue can compensate.

Within this constrained backdrop, listed companies are displaying varied operational resilience. J.K. Cement Ltd. demonstrated strong operational metrics, recording 19.4% year-on-year volume growth and blended realisations that beat estimates by 5.8%. However, this performance was achieved despite an EBITDA per tonne decline driven by fuel cost inflation. The company’s expansion roadmap remains intact, with its 7mtpa Jaisalmer integrated plant targeted for commissioning in the first half of FY28F. Additionally, Mahan coal block production is expected by end-FY28F, which the notes suggest could reduce future fuel costs.

Divergent Performance Among Listed Entities

The data reveals a fragmented landscape where individual company strategies are yielding different results amidst the same macro headwinds. JSW Cement reported a 33.1% year-on-year increase in Q2 revenue to ₹19,122 Mn, supported by approved additional grinding and cement capacity. Despite this top-line growth, net profit declined marginally to ₹854 Mn, illustrating the difficulty of maintaining earnings stability when input costs surge.

Dalmia Bharat Limited faced similar challenges, with volume growth held to 2.9% year-on-year against the stronger 7-8% demand growth due to weather disruptions. Consequently, EBITDA fell 29.2% year-on-year to ₹4.9 billion. The notes highlight that net debt-to-EBITDA peaked at 2x, reflecting the strain on balance sheets as cash flows tighten. Expansion projects and the BJCL acquisition are cited as catalysts, though the immediate risk remains suppressed volumes from heavy rain and elevated costs from the West Asia crisis.

ACC Limited presented a mixed picture for Q2FY27. While EBITDA beat estimates, volumes fell 13.4% year-on-year to 9.70 million tonnes. The notes attribute part of this weakness to brand migration issues following the merger with Ambuja Cements. Realisations remained strong at ₹5,786 per tonne, exceeding estimates, but revenue declined by 3.7% year-on-year. The merger with Ambuja Cements is expected to complete by FY27E, a milestone that may influence future volume dynamics.

Market share gains are being driven by volume growth ahead of industry demand and an expanding distribution footprint, with structural cost efficiencies expected from increased green power share.

Strategic Shifts Toward Cost Efficiency

Beyond immediate volume and cost pressures, the research notes emphasize long-term structural adjustments aimed at restoring margins. Companies are targeting market share gains through new capacity ramp-ups and proposed acquisitions. A specific focus is placed on energy transition; a green power share roadmap aims to increase renewable energy usage to 75% by FY30. This shift is viewed as critical for achieving structural cost efficiencies and mitigating exposure to volatile fossil fuel prices.

Grey cement capacity is also on an expansion trajectory, with targets reaching 50mtpa by FY30. This capacity addition is intended to support the market share gains observed in regions like North and Central India. However, the path to these targets involves managing near-term risks, including rising power, fuel, and packaging costs that continue to limit operating leverage. Net debt-to-EBITDA ratios are projected to peak at 2.25-2.35x during this expansion phase, indicating a period of financial leverage before the benefits of scale and efficiency materialize.

What to Watch

• Jaisalmer plant commissioning scheduled for the first half of FY28F.
• Mahan coal block production expected by end-FY28F.
• Completion of the merger between ACC and Ambuja Cements by FY27E.

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Published by FinBizNet Desk. This article is market data and research for educational purposes only; it is not investment advice, a recommendation, or a solicitation to transact. FinBizNet is not a SEBI-registered investment advisor. Please consult a registered advisor before making investment decisions.