Cement Firms Post Strong Q1 Volumes, But Fuel and Input Costs Keep Squeezing Margins

Indian cement companies are selling more cement than they were a year ago, and prices have edged up too. Yet quarter after quarter this year, the profit numbers keep telling a less encouraging story — margins are shrinking even as the top line grows.

That gap between healthy demand and weaker profitability defined the April-June quarter (Q1 FY27) for much of the sector, and it traces back to one dominant cause: a sharp, geopolitics-driven spike in fuel costs that has outpaced whatever pricing gains and volume growth companies have managed to post.

What's Actually Happening to Margins

Fuel is the single biggest swing factor. According to Kotak Institutional Equities, coal and petcoke costs — the two primary fuels used to run cement kilns — rose sharply in the range of 26% to 43% year-on-year in Q1 FY27, a spike the brokerage linked directly to the West Asia crisis that disrupted energy markets earlier this year. Kotak estimated that industry-wide average EBITDA margin would contract by around 1.7 percentage points year-on-year to roughly 15.7%, even as cement prices, adjusted for GST revisions, rose an estimated 4.4% quarter-on-quarter and 1.4% year-on-year.

Equirus Securities analyst Raghav Maheshwari framed the quarter in similar terms, projecting industry volume growth of around 8.2% year-on-year, while cautioning that profitability would likely come under "marginal pressure sequentially because of rising input costs and operating deleverage" — industry jargon for what happens when fixed costs get spread over a base that isn't growing quite fast enough to absorb them.

JM Financial's cement coverage universe told the same story from a different angle: the brokerage projected 9% year-on-year revenue growth for the quarter, backed by both volumes and better realisations, but expected EBITDA to decline 1.1% and adjusted profit after tax to fall a sharper 10.8% year-on-year. Ambit Institutional Equities analyst Satyadeep Jain put a rupee figure on the damage — as reported by Business Standard, which cited Jain directly — estimating the West Asia-linked fuel cost increase at roughly ₹70-80 per tonne in the quarter, with packaging adding a further hit, taking combined fuel and packaging cost inflation to an estimated ₹150-170 per tonne quarter-on-quarter. These are Jain's estimates rather than figures independently confirmed by the companies themselves, and should be checked against Ambit's original research note or Business Standard's report directly before publication.

How This Is Showing Up in Company Results

The pattern analysts predicted ahead of results season has largely played out in the numbers companies have actually reported.

JK Cement, among India's top five cement manufacturers, posted 18% year-on-year growth in grey cement volumes to 5.96 million tonnes for the quarter, with white cement volumes up an even sharper 29%. Despite that, EBITDA declined 5% year-on-year, as elevated fuel costs and higher maintenance expenses offset the benefit of stronger volumes and pricing.

JSW Cement told a comparable story, though the exact cost figures vary somewhat depending on the source and should be verified against the company's official filings before publication. Reported revenue growth for the quarter runs as high as 21.6% year-on-year in some accounts, alongside strong volume growth in the core cement segment and continued expansion into North Indian markets, with the company posting a profit after tax of ₹153.4 crore. On the cost side, average fuel consumption cost is reported to have jumped to around ₹1.80 per million kilocalories, up from a year-earlier range of roughly ₹1.49-1.55 — a sequential increase in the region of 20%. Combined raw material, power and fuel costs are also reported to have risen by around 15% year-on-year, though different accounts put the resulting per-tonne cost figure anywhere between roughly ₹1,300 and ₹2,100, a gap likely explained by different cost bases (e.g., total input costs versus a narrower fuel-only measure) that isn't fully clear from public reporting. What's consistent across sources is the direction: input costs rose sharply enough to compress margins despite strong volume and revenue growth.

Sagar Cement's numbers illustrate just how sharply the squeeze can bite for smaller players. The company posted 13% year-on-year volume growth to 1.61 million tonnes, but operating EBITDA fell a steep 40% year-on-year to ₹72.4 crore, with EBITDA margin contracting by 800 basis points to 10%, down from 18% in the same quarter last year. Joint Managing Director Sreekanth Reddy acknowledged the disconnect directly, saying the company achieved "healthy volume growth of 13%" even as "profitability and margins moderated due to elevated input costs across energy, fuel and packaging" amid ongoing geopolitical tensions. Sagar Cement has since revised down its full-year EBITDA-per-tonne guidance to ₹500-550, from an earlier target of ₹600, citing expected cost inflation of roughly ₹100 per tonne for the year — split roughly evenly between power and fuel costs and other cost categories.

Why Strong Volumes Alone Aren't Fixing the Problem

The disconnect between volume growth and profit growth comes down to simple arithmetic: cement pricing has moved up only modestly — in the low single digits on a year-on-year basis, by Kotak's estimate — while the cost of running a kiln has jumped by double-digit percentages. Selling more cement at a price that hasn't kept pace with input cost inflation means each additional tonne sold generates less profit than it would have a year ago.

Underlying demand itself has genuinely been healthy. Business Standard's reporting on brokerage estimates pointed to a mix of factors supporting volume growth this quarter: sustained infrastructure spending, a favourable year-ago base for comparison, and the timing of this year's monsoon, which analysts said arrived later than usual in parts of the country — a delay that, in construction terms, effectively left a longer stretch of dry-weather working days within the quarter before rain-related slowdowns typically set in. That's precisely why the results feel almost contradictory at first glance — companies are executing well on the demand side, but that execution isn't translating cleanly into earnings because of a cost pressure largely outside their control.

Not Every Company Is Affected Equally

Company size, fuel-sourcing strategy, and geographic footprint all appear to be shaping how badly individual players are hit. Larger, more diversified companies with greater ability to negotiate fuel contracts or shift toward alternative fuel sources appear somewhat better positioned to absorb the shock. UltraTech Cement, India's largest cement maker, was flagged by analysts ahead of results season as a company likely to outperform peers on relative resilience — this was an analyst expectation reported by Business Standard in its pre-results coverage, not a confirmed outcome, and UltraTech's actual reported Q1 FY27 numbers should be checked separately to see whether that forecast held up.

Smaller and mid-sized players, as Sagar Cement's steep 800-basis-point margin contraction suggests, appear to have less room to absorb cost spikes without it showing up directly in profitability — a dynamic that isn't unusual in a commodity-like industry where scale often determines bargaining power on inputs.

What Companies Are Doing About It

Across earnings commentary, a common thread is companies leaning on operational levers rather than pricing alone to manage the cost pressure. Sagar Cement's management pointed to planned maintenance shutdowns at its Mattampally and Jeerabad facilities in the coming quarter — disruptive in the near term, but part of the routine cost-management cycle the industry uses to keep plants running efficiently. JSW Cement's cost pressure was compounded by stabilisation expenses tied to its new Nagaur facility, a reminder that ongoing capacity expansion, while important for long-term growth, carries its own near-term cost drag as new plants ramp up.

More broadly, companies across the sector have been contending with rupee depreciation pushing up the landed cost of imported coal and petcoke, according to JSW Cement's own disclosures — an additional layer of cost pressure sitting on top of the underlying commodity price increases themselves.

What to Watch in the Coming Quarters

Analysts broadly expect the cost pressure to persist a little longer before easing. Ambit's Satyadeep Jain expects fuel-related cost pressure to intensify further in the second quarter, with an additional ₹70-100 per tonne increase likely, compounded by the monsoon-driven seasonal dip in volumes that typically raises fixed costs per tonne sold. Equirus, meanwhile, expects costs to peak in the second quarter before starting to ease from the third quarter onward, as petcoke prices are projected to correct by an estimated 10-15%.

That timeline matters for how investors read the sector's near-term outlook. If the cost peak-and-correct pattern analysts are forecasting plays out as expected, the second half of FY27 could see margins recover even as volumes benefit from a stronger construction season. Until then, the sector's story is likely to remain the one playing out in this quarter's results: companies executing well on the ground, and a fuel-cost shock outside their control eating into the reward for that execution.

For investors, the key numbers to track over the next couple of quarters will be fuel cost per tonne, EBITDA per tonne, and how quickly individual companies' cost-mitigation efforts — from operational efficiency drives to potential fuel-mix diversification — start showing up as margin stabilisation rather than continued compression. For the broader construction and infrastructure sector, meanwhile, the more relevant question may simply be whether cement makers eventually pass a larger share of this cost inflation on through higher prices, and how that would filter through to builders and, ultimately, end consumers.