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Long-awaited price hikes play out

Cost inflation being passed on to customers

Our channel checks suggest that the much anticipated price hikes have materialized in March, with prices up by INR20–30/bag MoM in South and East and INR10–15/bag in other regions. Demand remains strong, with growth in the high single digits in most regions (except South), which should help absorb these hikes. These hikes should also alleviate concerns on near-term margins from the sharp cost inflation seen in the last few months – petcoke, coal, and diesel prices are up 74%, 24%, and 34% YoY, respectively. We expect our coverage EBITDA to grow >25% YoY in 4QFY21, driven by ~20% YoY growth in volumes (low base due to COVID lockdown in Mar’20). UltraTech remains our favorite pick among the large-caps and Dalmia Bharat among the mid-caps.

Volumes remain strong, driven by demand across segments

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

* Demand has been robust over Jan–Feb (+8–10% YoY), led by a strong uptick in urban real estate and infrastructure activity. Regionally, demand continues to be strong in East, North, and Central, while it has now revived in West. South, however, remains weak with ~10% YoY decline.

* 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 picked up post a harsh winter and strong demand from individual house builders (IHB) as well as infrastructure projects.

* Demand in West has now also recovered from the pandemic, led by an uptick in urban real estate and construction.

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

South – production discipline stays strong

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

* Prices in South have increased by INR30/bag (or 8%) MoM to INR398/bag (+17% YoY). Prices are up 21%/23%/18%/10% YoY in Andhra Pradesh / Tamil Nadu / Karnataka / Kerala.

* In 4QFY21, average price in South is down 2% QoQ to INR380/bag on weaker prices in January and February.

North and Central – high capacity utilization supporting prices

* In North and Central, demand has been consistently strong in the past six months, with clinker capacity utilization currently ~90% (peak season demand).

* Prices in North have been raised by INR15–20/bag (4–5%) MoM across states to INR397/bag (+6% YoY).

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