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Demand for cement increased in the June quarter, the peak season for construction before the monsoon. Cement volumes transported by rail in May 2022 were 2% higher than in April, and up 30% from a year earlier. The year-on-year (YoY) growth is also expected to have been supported by the previous year’s lower base due to lockdowns, as per JM Financial Institutional Equities data. In May, volumes were also 3% higher than average volumes in January-February 2022, though March volumes are lumpy and not comparative. The cement volumes are expected to have increased well in May, too. Volume growth can push operating leverage at a time cost headwinds remain increased. However, the approaching monsoon season may cap volume growth in the forthcoming months as construction activities slow down during monsoon. Analysts already have a cautious view of the cement sector looking at cost headwinds posed by higher fuel prices and also more increased logistics costs. The March quarter and FY22 earnings hold testimony. UltraTech, India’s largest cement manufacturer, witnessed a consolidated revenue increase of 18% YoY in FY22, led by a 9% and 8% growth in sales volume and combined realisation respectively. However, the 14% YoY rise in per tonne operating expenses led to a decrease in operating margins, while earnings before interest, taxes, depreciation, and amortisation (Ebitda) remained flat. The story was no different for others. Dalmia Bharat saw a 20% rise in expenses while the prices improved by just 3%. The Jefferies report said cement coverage registered inline YoY Ebitda reduction of 20% for FY22, on cost forces. Volumes were flat YoY while growing 17-18% QoQ, pushing Operating leverage led QoQ uptick in unit Ebitda. Head of retail research at HDFC Securities Ltd, Deepak Jasani, said that in cement, cost forces would continue to pose headwinds for producers. Cement makers have raised prices several times in the past few months as demand picked up. However, price improvement persists to lag with soaring prices. Image Source Also read: Indian cement industry likely to add 80 million tonne capacity by 2024