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.

Over last decade Lightweight Construction Blocks have emerged as a building material of choice and a suitable replacement of clay bricks due to its superiority over later, like high thermal insulation, optimal fire protection, excellent acoustic & earthquake resistance properties.

The industry has recently witnessed revival in demand from 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 impact of these prices only partially. The product was selling at around Rs. 3800 per cbm in year 2013. The prices in the industry declined and remained low for a period of 8 years. At the other end industry is struggling to secure its flyash supplies. A sudden upswing in the raw material prices is the final nail in the coffin and has put AAC industry in 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. Cost of setting up new capacities has gone up by 70% over last few years. For the industry to survive, a pricing in range of INR 5000 - 5500 of INR 5000 would lead to healthy margins for the industry.

Pricing of all building materials have shot up significantly over past 12 months, leading to developers seeking a price increase of upto 10% in real estate projects.

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