Cement Sector Update - Resilient quarter; profitability intact despite cost rise By ICICI Securities
Resilient quarter; profitability intact despite cost rise
While YoY as well as QoQ comparison in Q1FY22E is not meaningful given the varying degree of lockdown / restrictions due to covid, industry is expected to post ~45% YoY growth in volumes with almost stable EBITDA/te YoY on a reported basis. On a QoQ basis, volumes are expected to be down ~20% QoQ vs usual ~10% QoQ decline, while average EBITDA/te may rise 8-9% QoQ despite cost escalations. We expect average realisation to rise 5% QoQ (Rs230/te) and 2.6% YoY (Rs130/te) and total cost/te to increase ~3% both QoQ and YoY (Rs120/te). Consensus earnings are yet again likely to be upgraded given better-than-expected prices sustaining till date in seasonally weak monsoon necessitated by cost escalations. Our coverage universe FY22-23E EBITDA are 8-10% ahead of consensus. SRCM & UTCEM remain our top picks. We also like ACEM, JKCE and TRCL. Key risks: Lower demand/prices and any regulatory intervention.
Industry volumes expected to grow 45% YoY / decline 20% QoQ during Q1FY22E to 85mnte (our estimate) with pan-India utilisation at ~70%. West and South regions are likely to lead volume growth on YoY basis on a low base which was severely impacted by covid last year. Similarly, non-trade demand is likely to be better on a YoY basis led by higher infrastructure demand. JKCE is likely to lead with ~70% YoY volume growth while UTCEM / ACEM may see 50-55% YoY growth. ACC / SRCM may see ~40% YoY growth.
Average pan-India prices up 6% QoQ during Q1FY22 led by 11% QoQ rise in East and 6-7% QoQ increase in South and West. Prices in North and Central regions are up 3-4% QoQ. On a YoY basis, average pan-India prices are likely up ~2.5% YoY led by 4-5% YoY increase in East and West, while other regions are broadly flat YoY. Non-cement revenues including RMC, white cement / putty etc are likely to be down >30% QoQ owing to covid-induced restrictions, impacting blended realisation QoQ.
Overall cost/te may increase ~3% both QoQ and YoY as sharp increase in variable costs are likely to be partially offset by better cost efficiencies. Average domestic pet coke prices are up 11% QoQ and 85% YoY, while imported coal prices are up 16% QoQ and 60% YoY. Similarly, average diesel prices are up ~7% QoQ and ~30% YoY.
Average EBITDA/te may rise 9% QoQ (~Rs100/te) and 2% YoY to Rs1,353/te for our coverage universe led by higher realisation. EBITDA growth is likely to be strong at 40-70% YoY for most companies under our coverage. TRCL is likely to lead with EBITDA/te of >Rs1,600/te followed by SRCM and DALBHARA at ~Rs1,500/te. UTCEM and ACEM may post EBITDA/te of >Rs1,400/te.
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