06-11-2021 10:41 AM | Source: Emkay Global Financial Services Ltd
Cement Sector Update - Monthly update—Prices firm, demand to recover after a short dip recently By Emkay Global
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Monthly update—Prices firm, demand to recover after a short dip recently

* Our channel checks suggest that industry volume decline MoM was likely in the low-teens in May’21, and up YoY (high single-digits) thanks to a low base. Nonetheless, demand may have started recovering in last 10 days of the month.

* Average pan-India prices were broadly flat MoM and YoY in May’21. Prices were up 6% QoQ in Q1FY22-TD, which should largely mitigate the impact of various cost escalations, as also weaker demand/offtake during this quarter, in our view.

* Continued lockdown relaxations, low demand base in the past two years, government’s focus on infrastructure-spends, and robust FY21-exit volumes augur sustainable demand recovery in the coming quarters.

* We maintain our positive view on cement sector. Our top picks are Dalmia Bharat, Shree Cement and Ambuja. Any resurgence in Covid-19 cases remains a key risk.

* Industry volumes likely declined in low-teens MoM (up in high single-digits YoY aided by low base) in May’21 due to localized lockdowns. Nonetheless, demand may have started recovering in last 10 days of the month. On a MoM basis, demand decline in West Bengal and Tamil Nadu was relatively higher post elections. On a YoY basis, growth was mainly led by West and South regions, owing to a low base as these regions were impacted the most last year.

* Demand from infrastructure and urban segments improved YoY, while it was largely flat in the rural segment. Though demand is likely to improve in Jun’21 before monsoon sets in, it may decline 20-25% QoQ (still +20-25% YoY on a low base) in Q1FY22E. With possible gradual relaxations in lockdowns and expectations of construction activities gaining momentum post monsoon, we expect a strong demand recovery in coming quarters. We model demand growth of 11.5% YoY (2-year CAGR: +5%) in FY22E.

* Average pan-India prices were broadly flat MoM and YoY in May’21. South and Maharashtra saw a price hike of Rs5-10/bag MoM, while prices fell by Rs3-5/bag MoM in other regions in May’21. Pan-India prices rose 2% YoY in East and West regions, but remained broadly flat in South and fell 2-3% YoY in North and Central regions. Companies have announced a price hike of Rs5-15/bag MoM across regions in Jun’21.

* Q1FY22-TD average pan-India prices are up ~6% QoQ, which would largely mitigate the impact of various cost escalations, as also weaker demand/offtake during this quarter, in our view. Accordingly, we do not expect margins to be impacted in Q1FY22E. Cement prices are up 6-10% QoQ in East, West and South regions and around 2-3% sequentially in North and Central regions.

 

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