Boral boss Vik Bansal warns ‘inflation here to stay’ for at least 12 months

Boral chief executive Vik Bansal has declared inflation is here to stay for at least the next 12 months with the company seeking price hikes from customers to counter cost pressures.

Vik Bansal, the Boral chief executive hand-picked by the billionaire Stokes family to turn around struggling construction materials giant, has declared inflation is here to stay for at least the next 12 months with the company seeking price hikes from customers to counter cost pressures within its business.

Mr Bansal pointed to the poor inflationary outlook to highlight the deleterious effects of fixed price contracts widely used by the construction sector, saying Boral would not look to “fill our book with bad volume” and calling for a move away from the practice.

Addressing analysts at an investor day on Thursday, Mr Bansal said beyond the economic environment – marked by stubbornly high inflation – Boral would seek to hike earnings margins to 10 per cent, from around just under 6 per cent presently, and this should be achieved without the need to go on an acquisition spree.

He said Boral, which has underperformed for years, “needed to get our own house in order” first before striking acquisition deals, with plenty of work still to be done on internal performance and customer service.

Boral, one of the largest integrated cement, concrete, lime and asphalt producers in Australia, is at the forefront of rampant inflation running through the economy, and Mr Bansal said he saw this continuing for at least the next year.

“I do want to make a point that the inflation pressure is not going away,” Mr Bansal told analysts. “From our perspective the pressure on price over the next 12 months is not going away.’’

Boral chief executive Vik Bansal.

This had led Boral to raise its prices across the country.

In some cases this had come along with margin improvements while in other cases the price hikes only countered the inflation in its own costs.

“We have seen price traction across all regions and all product lines,” Mr Bansal said.

Boral’s earnings run rate in the second half of 2023 was ahead of the first half and was expected to remain so for the full year.

Once a blue-chip stock that was a favourite in many portfolios, Boral has struggled of late with its share price down 37 per cent in the last five years.

Mr Bansal was chosen for the chief executive role by Boral chairman Ryan Stokes, with the family of billionaire Kerry Stokes controlling 73 per cent of the company. He was appointed CEO in late 2022 having previously been the boss of InfraBuild, Australia’s largest vertically integrated steel manufacturer.

Before that Mr Bansal was the chief executive of Cleanaway waste management but stepped down in 2021 in the wake of damaging allegations around a culture of bullying and harassment under his leadership.

Mr Bansal called for an end to fixed-price contracts in the construction industry, saying at a time of high inflation this was damaging earnings, and bringing an end to the practice would be a real test for the industry.

He told analysts Boral needed to improve its customer service, especially around obvious areas such as giving customers a better time window for when a Boral truck would turn up to a job.

Goldman Sachs analyst Niraj Shah said the market had been anticipating a stronger second half, as confirmed by Boral executives at the update.

“Management stated that the second-half EBIT (earnings before interest and tax) run rate was ahead of the first half and is expected to remain ahead for the full year,” Mr Shah said.

“Previously, management had guided to second half EBIT being in line with the first half.

“That said, expectations for a stronger second half, versus first half, were already in place.”

In terms of outlook, Goldman Sachs has pencilled in Boral Australia’s margin returning to 9.3 per cent and the broader group 9 per cent by fiscal 2026.

Shares in Boral tumbled 5.7 per cent, or 24c, to close at $3.94 on Wednesday after hitting a year high of $4.29 in intraday trading the previous day.

Goldman Sachs has a 12 month price target of $4 on the stock.