Elevated input costs to squeeze cement makers' operating margin in FY27: Crisil Ratings

Crisil Ratings in its latest report has said that the operating margin of cement makers is expected to reduce by ₹50-75 per tonne this fiscal (FY27) to ₹925-950 per tonne as against around ₹1,000 per tonne in fiscal 2026 (FY26), on the back of elevated input costs due to the ongoing West Asia conflict. However, it said that operating cash flows should improve as domestic demand holds steady. This, along with strong balance sheets, will help sustain stable credit profiles across the sector.

As per the report, 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) rates, prices are likely to rise 1-3% during the fiscal. Further, 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.

The rating agency further said that ongoing capacity additions to cater to growing demand will keep capital expenditure elevated. As a result, while leverage, measured as net debt to EBITDA, may increase but will still stay healthy at 1.2-1.4 times this fiscal - up from around 1.0 time in the last fiscal. Hence, robust balance sheets and resilient cash flows should support stable credit profiles across the sector.

However, it noted that lower-than-expected infrastructure spending, including delays in project awarding and execution, could affect cement demand. Any postponement in the anticipated softening of commodity and energy prices due to geopolitical developments could also weigh on profitability and will bear watching.