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 Cement manufacturers’ profitability will rise about 2.5 per cent to 3.5 per cent this fiscal year due to improved realisations driven by higher volumes and premiumisation amid steady selling prices and cost of inputs, a report said on Tuesday. 

Though the goods and services tax from 28 per cent to 18 per cent is expected to weigh on retail prices, the premiumisation and higher demand will offset the pressure and improve profitability for the manufacturers, the report from Crisil Intelligence said.

Cement volumes are seen rising 6.5-7.5 per cent year-on-year after a 5 per cent growth last fiscal, with a moderate 5 per cent growth in the first half and a projected 8-9 per cent surge in the second half fuelled by pent-up demand and better liquidity.

The firm projected that average pan-India prices will remain rangebound at Rs 354-359 per 50 kg bag, based on analysis of 14 major manufacturers that account for about 85 per cent of industry revenue.

“The average pan-India cement prices saw a modest 3 per cent on-year increase during the first half,” Sehul Bhatt, Director, Crisil Intelligence.

"However, we anticipate the full impact of the GST reform will be realised in the third quarter, leading to a 4-5 per cent decline in retail prices in the second half of the fiscal. Despite subdued pricing, the industry is poised for higher realisations this fiscal, driven by healthy volume growth,” Bhatt added.

Excluding GST, cement prices are expected to rise 3-4 per cent on-year in the coming quarter. However, the reduction in GST is expected to lead to a decline in overall prices, it said.

The manufacturers saw a 5 per cent increase in realisations in the first half of this fiscal. The momentum is expected to slow in the second half, with realisations growing a modest 0-2 per cent.

Raw material costs are likely to remain elevated because of higher limestone prices. Crisil projected operating margins expanding to 18–20 per cent from about 16 per cent last fiscal as overall costs are expected to be stable.