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Demand has improved, but pricing remains muted

North and West see hikes, but South and East on the decline

Our channel checks indicate the seasonal uptick in demand is playing out, with volumes bouncing back strongly from the weakness seen in the first few weeks of Jan. While prices have improved 1–2% MoM in North and West, average pan-India price is down 2% QoQ thus far in 4QFY21 (+1% YoY). Cost inflation is also a concern in the near term as petcoke, coal, and diesel prices are up 71%, 4%, and 26% YoY, respectively. Therefore, we expect margins to decline sequentially for the industry, but they should still be higher YoY. We expect our coverage EBITDA to grow >20% YoY in 4QFY21, driven by ~18% YoY growth in volumes.

Volumes remain strong; peak season demand kicks in

* Following ~10% YoY growth reported in volumes in 3QFY21, we expect volumes to grow 18–20% YoY in 4QFY21 (supported by the low base of 4QFY20 – volumes declined 13% YoY on government-mandated lockdown in March).

* Demand has been strong in February (+8–10% YoY), led by continued strong demand in East, North, and Central and revival in West. Although, demand remains weak in South.

* Demand in East has been particularly strong (>10% YoY), supported by preelection spending in West Bengal and strong industrial/infra demand in Odisha.

* Demand in North and Central has also improved in February – supported by a receding winter season, which has improved the pace of construction work.

* Demand in West has rebounded strongly, led by recovery in urban real estate and construction. Maharashtra volumes are now on the rise for the first time since the pandemic.

* Demand in South has remained weak on a YoY basis, but improved sequentially, driven by a strong uptick in Andhra Pradesh and Telangana.

South – price down 1% MoM, but still up 9% YoY

* The Cement industry in South has exhibited a strong production discipline in the past year, in the face of weak volumes. 

* Prices in South are still up ~INR30/bag (or 9%) YoY to INR371/bag in Feb’21, led by hikes taken over Apr–May’20. Prices are up 11%/12%/12%/3% YoY in Andhra Pradesh / Tamil Nadu / Karnataka / Kerala.

* On a MoM basis, though, price is down 1% on account of 3% MoM decline in Tamil Nadu, while it is flat across other states in South.

North and Central – strong demand supporting price hikes

* In North and Central, demand has picked up, led by a receding winter and the end of the harvest season, enabling workers to return to construction sites.

* Prices in North are up ~2% MoM (flat YoY) to INR378/bag, led by an INR5– 10/bag hike across the region, supported by high plant utilization (>90%).

* Prices in Central, however, have been flat MoM at INR349/bag (up 3% YoY).

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