“Sharp increase in commodity prices, along with increased competition, will have an adverse impact on industry profitability, with anticipated decline in operating profitability by 100-200 basis points in the current fiscal,” Icra said in a statement.
A sharp rise in commodity prices seen in FY22, if sustained, can reduce players’ profitability by 100-200 basis points in the current financial year.
Notwithstanding some moderation in steel prices in the past 6-8 weeks, the prices of steel were still higher by 40 per cent compared to the rates of March 2021, which will continue to remain a drag on profitability.
Similarly, fuel prices and bitumen prices have also seen a sharp increase in the last one year. The commodity price increase has been much sharper than the overall inflation rate and hence inflation-linked price escalation clauses (in some contracts) will not be able to absorb the commodity price hikes.
It further said that it expects the construction industry in India to witness a healthy revenue growth in the medium term.