Rise in input costs for cement manufacturers is expected to hit the sector's overall operating margins by 200-230 basis points in FY22, ratings agency ICRA said on Thursday.
The major inputs required in the production of cement are coal, petcoke and diesel. Elevated freight cost also added to the production cost.
Notably, the projected decline in operational margins is despite a rise in production of the commodity and offtake by the infrastructure industry and rural housing sector.
"In terms of recent trends, the all-India cement production reported an increase by 22 per cent YoY in Q2FY22 and by 10 per cent as compared to Q2FY20, supported by the strong demand from the housing segment and pick-up in infrastructure activities," it said.
Faced with rising input costs, several cement manufacturers went for a price hike in 2021.
According to Anupama Reddy, Assistant Vice President and Sector Head, Corporate Ratings, at ICRA: "While the capacity additions are expected to increase in FY22 when compared to previous year, the reliance on debt 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 FY22."
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