Price increases to offset cost escalations
Cement companies under our coverage are likely to report ~6% YoY (~20% QoQ) EBITDA growth during Q1FY18 led by 4.6% YoY volume growth. We estimate industry volumes to be up ~1% YoY as strong demand growth in East region is expected to be offset by volume declines in South and Central regions. Average pan India prices are likely to be up ~6% YoY and ~7% QoQ led by West region where prices are likely to be up 10% YoY and 15% QoQ. Prices across other regions are likely to be up 3-7% both YoY and QoQ. Total costs/te are expected to be up by ~7% YoY led by price increase in pet coke, diesel, slag, packing material etc. With the onset of monsoon, news flow on volume / prices is likely to remain muted. Any sharp correction in cement stocks would be an opportunity to accumulate as we believe the structural thesis of utilisation / pricing / margin improvement still remains intact. SRCM, UTCEM, TRCL remain our preferred picks.
* Industry volumes likely up ~1% YoY / down ~2% QoQ: Volumes in South and Central regions are likely to be down YoY owing to weak off take in Tamil Nadu (political issues) and Uttar Pradesh (sand mining issue and high base) respectively. Volumes in the East regions likely grew sharply >20% YoY led by strong demand in Bihar, Jharkhand and Odisha backed by increased government spending on road, housing, hospitals etc. Overall, we expect SRCM / ORCMNT to report 13% / 11% YoY volume growth; while ACC, DBEL, JKCE and JKLC may report 6-9% YoY volume growth. UTCEM, ACEM may report 1-2% YoY volume growth; while ICEM / PRSC volumes may decline marginally on YoY basis.
* Average pan India prices likely up 6% YoY and 7% QoQ: Cement prices likely increased 5-7% QoQ across India (ex-West) and ~15% QoQ in West. On YoY basis, prices likely increased 3-6% YoY across India (ex-West) and ~10% YoY in West.
* Average EBITDA/te likely to increase ~3% YoY / ~26% QoQ to Rs1,037/te: Total costs/te is expected to be up ~7% YoY and 2% QoQ led by price increases in pet coke, diesel, slag, packing material etc. Average EBITDA/te including other operating income and government incentives for companies under our coverage is expected to increase Rs25/te YoY and Rs211/te QoQ. We expect ACEM to see maximum uptick of Rs351/te QoQ and report EBITDA/te of >Rs1,000/te led by improved prices in the West region.
* Q1FY18 result picks: ACEM (BUY) and DBEL (ADD).
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