Published on 6/08/2020 10:58:37 AM | Source: ICICI Securities Ltd

Cement Sector Update - Quarter exit EBITDA/te inching up YoY By ICICI Securities

Posted in Broking Firm Views - Sector Report| #Cement Sector #Sector Report #ICICI Securities

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Quarter exit EBITDA/te inching up YoY

EBITDA decline YoY during Q1FY21E for companies under our coverage would broadly be restricted to volume decline, despite high base of EBITDA/te (+45% YoY) last year. This would imply industry average exit EBITDA is turning flat YoY or actually up YoY (especially for North / Central regions) and exit EBITDA/te is up YoY across all regions. Key factors to watch out for include (a) sustenance of current demand / pricing trends on a YoY basis even as we enter a seasonally weak monsoon quarter; and (b) urban / non-trade demand improvement with likely gradual relaxation in lockdown. We maintain our positive stance and see an upside risk to consensus estimates. SRCM and UTCEM remain our top picks.

* Industry volumes likely down 35% both YoY and QoQ in Q1FY21E owing to Covid-19 lockdown during Apr’20. While volumes in North, East and Central regions likely grew YoY during May-Jun’20 owing to pre-monsoon pent-up rural/ semi-urban demand also aided by low base; volumes in South and West regions (most impacted by Covid-19 outbreak) sharply declined >25% YoY even during May-Jun’20. SRCM/ DALBHARA/ JKCE/ JKLC/ PRSMJ volumes are likely to decline ~20% YoY, while UTCEM/ ACC/ ACEM/ TRCL’s volumes likely to fall 30-33% YoY. ICEM/ ORCMNT may report higher ~45% YoY decline in volumes. RMC division of UTCEM, ACC and PRSMJ may see 70-80% YoY revenue decline, while white cement portfolio of UTCEM and JKCE may see ~50% YoY drop as urban demand still remains impacted.

* Average pan-India realisation likely up 1% YoY / 7% QoQ: Average pan-India prices likely increased >15% QoQ in South, 5-7% QoQ in North, East and West, and 3% QoQ in Central region. On YoY basis, prices were up 9% in South, 4% in North, marginally up in West and Central regions, while it declined 5% YoY in East region.

* Average EBITDA/te may increase ~6% QoQ (down ~10% YoY) to Rs1,130/te for coverage universe as QoQ increase in realisation more than offsets poor operating leverage. Total cost/te is still expected to remain flat YoY as >15% YoY decline in coal/ petcoke prices would more than offset poor operating leverage (15-20% fixed costs). SRCM / TRCL are likely to lead with almost flat EBITDA/te YoY at Rs1,440/te and Rs1,340/te, respectively. UTCEM / ACC / JKCE may register ~15% YoY decline in blended EBITDA/te to Rs1,200/te, Rs900/te and Rs1,125/te, respectively, owing to weaker performance in their RMC / white cement divisions. ACEM’s EBITDA/te may decline 10% YoY to Rs1,075/te owing to expiry of incentives, while DALBHARA may see 13% YoY decline to Rs1,280/te owing to weak prices in East region. JKCE / JKLC / ORCMNT’s grey cement EBITDA/te may see single digit YoY increase.


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