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Earnings upgrade to continue
Consensus FY20E-FY21E EBITDA, which saw 7-8% upgrades in past three months, is likely to see further upgrades with Q1FY20E results given sustenance of sharp price hikes (9% QoQ) and declining input costs. EBITDA for companies under our coverage is likely to be up ~40% YoY with similar increase in average EBITDA/te to Rs1,234/te despite muted volume growth. Our channel checks suggest prices are sustaining across most regions even in Jul’19 despite onset of monsoon. We maintain our positive view on the sector as clinker utilisation crosses 80% in FY20- FY21E almost after a decade, enabling EBITDA-accretive price increases. SRCM, UTCEM and TRCL are our top picks. We also like JKCE / JKLC in the midcaps.
* Industry volume growth likely to be flat YoY in Q1FY20E led by sharp price hikes and production discipline coupled with general elections and labour/water shortage. Our channel checks suggest while South, West and Central regions have seen YoY growth during Q1FY20E, North and East regions have witnessed decline in volumes. However, most cement companies remain confident on ~7% demand growth in FY20E led by better pick-up in government infrastructure spend during H2FY20E. We factor 2-5% YoY volume growth for UTCEM, TRCL, DALBHARA and ORCMNT. SRCM may report 13% YoY volume decline given strong price hikes in North while most other companies may report 2-6% YoY fall in volumes. Average pan-India industry utilisation is likely to dip 2-3% YoY to 74%.
* Average realisation likely to be up 8-9% YoY and QoQ: Average prices are likely up ~9% QoQ led by sharp 14% QoQ increase in North and 5-10% QoQ increase in other regions. On a YoY basis, average prices are up ~10% YoY led by 20% YoY increase in North, 12% in Central and 6-9% YoY increase in other regions.
* Average EBITDA/te for our coverage companies likely to be up 41% YoY and 34% QoQ to Rs1,234/te led by higher realisation (Rs350-400/te) and lower costs. Total cost/te expected to be broadly flat YoY and QoQ basis. Besides, benefit of further 3-21% decline in various input prices since Mar’19-end would also flow through in the next few quarters. North-based companies like JKCE / JKLC’s EBITDA are likely to almost double YoY while SRCM / UTCEM/ TRCL are expected to report 47-53% YoY EBITDA growth. ACC / ACEM / DBEL are likely to report lower 11-13% YoY EBITDA growth.
* Q1FY20 result picks: SRCM (BUY), UTCEM (BUY)
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