Mumbai, July 17 -- HDFC Securities reported that cement industry margins are expected to contract by over Rs 100 per metric tonne (t) to below Rs 880 per t in the second quarter on a quarter-on-quarter basis. The firm added that margins could recover in the second half of FY27 if West Asia turmoil subsides and commodity cost pressures ease. The assessment reflects seasonal demand weakness and rising input costs.

The report said cement prices are not expected to rise quarter on quarter as demand softens with the monsoon. It warned that fuel cost pressures, including higher coal and pet coke prices, will build QoQ and that seasonal operating leverage losses will weigh on profitability. HDFC Securities expected coal and pet coke costs to peak in Q2FY27 while PVC resin movements will push packaging costs higher before a cool off.

Demand trends during the quarter were described as volatile, with offtake muted in May and improvement following a delayed monsoon in June. Pricing traction remained sub-optimal amid the combined energy and packaging cost environment, constraining producers ability to pass through higher input prices. The report estimated that average cement selling prices rose modestly by two to three per cent quarter on quarter across regions.

On volumes the research house estimated aggregate volumes for its coverage universe to rise by around seven per cent year on year, which implied an approximate ten per cent quarter on quarter seasonal decline. On realisation it projected an average net selling revenue increase of two point five per cent quarter on quarter while remaining flattish year on year. The firm continued to express confidence in long term demand drivers.

HDFC Securities concluded that a combination of eventual cost cool off and steady demand should support a margin rebound from H2FY27 onwards, provided geopolitical pressures abate. It forecast that the coverage universe would deliver roughly eight point five per cent volume compound annual growth rate over FY26 to FY28E, underpinning a recovery in realisations and operating margins as the year progresses.

Published by HT Digital Content Services with permission from Construction World.