Huge demand-supply mismatch might bring down cement manufacturers' profitability to the decade's lowest levels by 2012-13, Crisil Research said today.
"The magnitude of the demand-supply imbalance and cost escalation will halve the cement industry's EBITDA margins from the current 20% to around 10% in 2012-13 -– the lowest level in the past 10 years," Crisil Research Head (Industry and Customised Research) Prasad Koparkar said.
Over the next two years, while cement capacities were set to rise by 60 million tonne per annum, demand would increase by a mere 30 million tonne.
"As a result, the operating rates of cement manufacturers would further go down to around 72% in 2012-13 from an already subdued 78% in 2010-11," Crisil Research said.
Cost of power and fuel, a major input for cement, would increase by around 18% in 2011-12, given a steep rise increase in coal prices by the industry's dominant supplier, Coal India, it added.
"In addition, an increase in effective excise duty rates will lower cement manufacturers' net price realisations by 2-4%," Crisil Research said.
The key reasons for the better performance of large cement manufacturers would be their greater use of captive power and their inherent economies of scale.
