The Indian cement sector is bracing for a significant moderation in its operating profitability during financial year 2026-27 (FY27), primarily driven by escalating power, fuel, and selling costs. According to a recent analysis by rating agency ICRA, the ongoing geopolitical crisis in West Asia is a key factor contributing to this financial pressure.
Rising Input Costs Threaten Margins
ICRA's report highlights that power, fuel, and selling expenses collectively account for 50-55% of the total operating costs for cement manufacturers. The conflict in West Asia has led to an uptick in global crude oil prices, which directly impacts the cost of crucial inputs like petcoke, diesel, and polypropylene. These rising commodity prices are expected to weigh heavily on the sector's operating profitability.
Specifically, power and fuel costs are anticipated to climb by 10-12%, while selling costs could see an increase of 6-8%, driven by higher freight and packaging expenses. Anupama Reddy, Vice President and Co-Group Head, Corporate Ratings, ICRA, emphasized the risk: “The crude-linked cost pressure poses a key risk, particularly if geopolitical tensions persist. In FY27, power and fuel costs are set to rise, driven by the uptick in petcoke prices, tightening fuel markets and likely rise in coal prices. Additionally, higher logistics costs and a depreciating rupee are expected to increase the landed cost of fuel.”
Projected Profit Decline and Mitigation Efforts
The rating agency estimates that the operating profit of major cement companies could decline by 10-15% in FY27, falling to approximately Rs 820-870 per million tonne (MT) from an estimated Rs 950-980 per MT in FY26. This represents a substantial hit to the sector's financial health.
However, the industry is not without strategies to counter these challenges. Cement manufacturers have already initiated price hikes, with an increase of Rs 10-12 per bag in April. The extent to which these increases can be passed on to consumers, however, remains dependent on the delicate balance of demand and supply dynamics within the intensely competitive market.
Sector's Resilience Amidst Headwinds
Despite the looming cost pressures, ICRA maintains a stable outlook on the cement sector's credit profile. The agency projects that debt protection metrics are likely to remain comfortable, indicating a degree of resilience within the industry.
The cement sector is inherently energy-intensive, relying heavily on coal and petcoke for clinkerization processes and for powering captive thermal plants. From a distribution standpoint, companies depend significantly on road networks for transporting both raw materials to manufacturing facilities and finished products to end customers. These operational dependencies make the sector particularly vulnerable to fluctuations in fuel prices and logistics costs, which are directly impacted by global events such as the West Asia crisis.