Rise in Construction Block prices on higher input costs to affect Real Estate projects

An increase in price of raw materials lime, cement, petcoke aluminum powder, could cast a shade on AAC Blocks industry which was already under margin pressure due to excessive competition intensity. However, a rise in volume accompanied by a moderate price hike in Lightweight Concrete Block prices is less likely to balance the impact of rising input costs for AAC firms.

An increase in the price of raw materials (lime, cement, petcoke & aluminum powder), could cast a shade on AAC Blocks industry which was already under margin pressure due to excessive competition intensity. Over the last decade, Lightweight Construction Blocks have emerged as a building material of choice and a suitable replacement for clay bricks due to their superiority over later, like high thermal insulation, optimal fire protection, and excellent acoustic & earthquake resistance properties. The industry has recently witnessed a revival in demand from the urban housing sector. However, a rise in volume accompanied by a moderate price hike in Lightweight Concrete Block prices is less likely to balance the impact of rising input costs for AAC firms. Operating profits are estimated to be much lower in FY23 due to higher costs and lower net margins. Petcoke prices have increased by ~70%. Lime and Aluminum prices have increased by 25% and 60% respectively. Overall inputs have increased by almost 35% and on the contrary AAC, manufacturers have been able to forward the impact of these prices only partially. The product was selling at around Rs. 3800 per cbm in the year 2013. The prices in the industry declined and remained low for 8 years. On the other end, the industry is struggling to secure its flash supplies. A sudden upswing in the raw material prices is the final nail in the coffin and has put the AAC industry in the doldrums. AAC Block prices are still below Rs. 4500 per cbm and brick prices meanwhile have gone beyond Rs 5500 per cbm in some areas. The cost of setting up new capacities has gone up by 70% over the last few years. For the industry to survive, pricing in the range of INR 5000 - 5500 INR 5000 would lead to healthy margins for the industry.

Pricing of all building materials has shot up significantly over the past 12 months, leading to developers seeking a price increase of upto 10% in real estate projects. Disclaimer: Content produced by Samanvay