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Margins to remain stable QoQ despite cost pressure and lower sales volume;

The localized curbs, which are effective in the majority of states, could cause revenues to drop by more than 17% QoQ in Q1FY22E from Q4FY21 especially in the rural pockets. In terms of non-trade sales, some key major infrastructure project would continue to support the demand though on a moderate scale due to limited labour availability. Retail demand remained weak in the May-21 while it reported strong recovery in June-21 ahead of monsoon. In terms of prices, while majority of price hike taken during April first week rolled back post imposition of restrictions, June month saw sharp price hikes with East, South and west region witnessing hike of over 11.8%/8.6%/7.5% respectively. With this, we expect June quarter to close with average price hike of 6.5% QoQ basis that would help the company to mitigate the cost pressure during Q1FY22 that should lead to broadly flat to positive margins. However, overall profitability is expected to drop by over 20% QoQ due to fall in the sales volumes. Amongst our coverage universe, south based companies like Ramco & Sagar cement would report sequential volume de-growth of over 30% 24% while North based companies would report volume decline of 15-18%. Overall, for Q1FY22E, our I-direct cement coverage universe is expected to report sales volume de-growth of 19.1% QoQ. However, it is likely to remain higher by 45.3% on YoY basis to 49.4MT on a lower base.

All India average prices are up 2.3%YoY, 6.5%QoQ;

As per our channel checks, average cement price is likely tobe up by 2.3% YoY and 6.5% QoQ to |382/bag (Including NER region) followed by price hikes announced in the first week of June-21 with East, South and west region witnessing hike of over 11.8%/8.6%/7.5% respectively. North & Central regions saw average price hike of 2.4% QoQ. This in turn would help players to offset the impact of high cost pressure and protect maintains. However, as per the dealer’s check, there would be some roll back in the prices in the medium term with temporary moderation in the demand due to onset of monsoon.

EBITDA/t to broadly remain flat QoQ despite high cost pressure

Average diesel prices are up by ~28%/6% YoY/QoQ leading to rise in average freight costs per tonne by ~|50-52/t on QoQ basis. Also petcoke and coal prices inched up further by 12%/19% on QoQ basis. With freight & power comprising over 50% of cost, we expect total production cost to increase by |110/t QoQ to |3946/t (up 2.7% YoY, 2.8% QoQ). However, with improved prices and controlled overheads, we expect EBITDA/t to remain broadly flat QoQ to |1282/t for our coverage universe.

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