* Utilisation at multi-year low in 1QFY21: COVID lockdown-led sales loss in April and drag in May/June pulled down cement demand in 1QFY21E to a multi-year low. We estimate the aggregate volume of our coverage universe (11 companies) will decline 28/30% YoY/QoQ. Utilisation slumped to 52% (vs 76/75% YoY/QoQ). Sales fell ~40% YoY in south/ Maharashtra, ~20% in north/central/Gujarat. However, sales grew (5-10%) in the east, in our view. Trade sales fell at a much slower pace compared to non-trade sales.
* Cement price increased QoQ: Cement companies took price hikes in April/ May’2020 across regions to moderate the impact of the sales decline. In our estimates, cement prices in 1QFY21E rose 6/5/9/4/26% QoQ. Trade prices in AP/T region surged the highest (up 40% QoQ on a low base). The average NSR for our coverage universe rose 7% QoQ (flat YoY).
* Opex inflates despite falling input cost costs: Subdued fuel prices should also cushion the industry in 1QFY21E. We model in 9/2% YoY decline in unitary input and logistics cost for our coverage universe. Despite this, we expect the opex inflation at +3% YoY (the highest in the past six quarters), owing to a 27% YoY surge in unitary fixed cost (utilisation slump).
* Robust margin sustained in 1QFY21E: Utilisation fall and opex inflation amid flat NSR YoY should cool off 1QFY21E unitary EBITDA (for coverage universe) by 8% YoY to Rs 1,178/MT (second-best in past many quarters).
* Companies’ performance: We expect aggregate revenue/EBITDA/APAT in 1QFY21E to fall 29/35/48% YoY due to demand contraction. We estimate a slower EBITDA decline for companies with a larger presence in northern, central, eastern and AP/T markets. We model in sharper EBITDA decline for pan-India players (UltraTech and ACC) and NE-based Star Cement.
* Outlook: We expect volume decline pace to subdue in subsequent quarters, leading to a 14% decline in FY21E. We estimate aggregate volume to rebound 19% YoY in FY22E. We estimate aggregate margin to remain flattish at ~21.5% during FY20-22E on lower input costs. Aided by higher regional utilisation, we expect regional pricing to remain buoyant in the north/central regions. We introduce FY23E estimates in this note and roll forward target valuations on Jun’22E. We maintain our recommendations for the coverage universe.
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