Q3 FY21 Earnings Preview
We expect cement industry growth during Q3FY21E to hover around 4‐5% y/y with sustenance of rural demand and distinct pick‐up of infrastructure activities in few regions. Although demand witnessed softness during November 2020, it was more of a seasonal phenomenon with very sharp rebound in December 2020. In terms of region specific outlook, we expect East (growth of ~8% y/y) and West markets (growth of 6‐ 7% y/y) to outperform followed by North and Central (growth of 3‐5% y/y) while South continues to be in negative territory (de‐growth of 3‐5% y/y). On the basis of our dealer survey, we estimate PAN India prices (wtd average of trade and nontrade prices) to be down 2% sequentially and up ~2‐2.5% on y/y basis. Price drag on q/q basis was primarily led by East and South which witnessed cuts of ~3%/5% respectively while prices were largely flat on sequential basis in North, Central and West.
Overall, total volumes of companies under our coverage universe should witness a growth of 6.8% y/y while the decline in weighted average NSR should hover around 2% sequentially. In terms of cost, we expect clinker production cost/te to start inching up led by 7‐10% sequential hike in power and fuel costs. However, due to healthy pricing scenario and lower cost curve compared to last year, we expect EBITDA/te to witness strong improvement of 23.2% y/y while sequential decline should be limited to ~15% q/q for our coverage universe. Weighted average EBITDA/te for coverage universe should stand at Rs 1,116 in Q3FY21E as against Rs 906 in Q3FY20. This would translate into overall EBITDA growth of 32% y/y.
In terms of building material segments, we expect MDF category to showcase extremely strong volume growth of 17‐20% y/y led by sturdy rural demand and aggressive product penetration strategies of top MDF companies. We believe laminate industry to achieve normalization during the quarter with flattish growth y/y led by marginal de‐growth in domestic markets and outperformance in overseas markets. For the ply industry, we expect volume de‐growth in the range of 5‐10% y/y.
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