India’s cement sector could face sharp earnings pressure in FY27 as global fuel prices spike amid supply disruptions linked to tensions around the Strait of Hormuz. 

A recent brokerage report warns that the full impact of rising input costs will likely show up in quarterly earnings over the coming fiscal year, even as cement stocks have already begun reacting on the bourses.

How Steep is the Fuel Cost Surge?

In the past two weeks, crude oil prices have increased by almost 39%, while thermal coal and petroleum coke, which serve as essential fuel sources for cement production, have increased by 14% and 18% in international markets, respectively.

Cement companies face higher production costs because they rely on energy-intensive processes. Market sentiment has shifted to a cautious stance because large-cap and mid-cap cement stocks have fallen about 12% and 11%, respectively, indicating that investors are worried about margin pressures.

Can Companies Pass on Higher Costs to Consumers?

Industry estimates suggest cement makers may need to raise prices by about 1.8%, roughly Rs 6 per bag, to offset the current rise in fuel costs. Historically, cement prices increase by around 4.6% in the first quarter of a financial year.

The inflation during input costs and the requirement to achieve earnings targets for FY27 demand that Q1 price increases must reach 6.4% to satisfy these goals. The analysts warn that businesses will face reduced demand when they implement excessive price hikes which will be especially harmful during periods of decreased construction work and seasonal consumption declines.

What Knowledge does History Provide to Us?

The Russia-Ukraine conflict created a similar situation, which began at the start of FY23. Cement companies increased prices by 5.5% during the first quarter, but they were forced to decrease prices by more than 5% during the next quarter because of deteriorating demand.

Businesses must find the right balance to protect their profit margins and maintain customer demand.

Which Players Have Better Market Advantages?

Businesses that utilize greater amounts of renewable or alternative fuels will experience fewer operational cost challenges. Manufacturers with operational facilities in areas close to Madhya Pradesh and Chhattisgarh coal mining sites will benefit from improved transportation options and material acquisition capabilities.

The entire industry experiences fuel inflation, but certain companies can use their structural advantages to minimize revenue losses during FY27.