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Monthly update—Prices firm, demand improves after a slight dip

* Our channel checks suggest that industry volumes likely increased in high-teens MoM in Jun’21 (up YoY in high single-digits), owing to the easing of restrictions and pre-monsoon/pent-up demand. In Q1FY22, industry volumes likely declined in mid-teens QoQ, though significantly up YoY thanks to a low base.

* Average pan-India prices rose marginally MoM (flat YoY) in Jun’21. Prices were likely up 6% QoQ (broadly flat YoY) in Q1FY22, which should largely mitigate the impact of various cost escalations during this quarter, in our view.

* We maintain our positive view on the cement sector. Our top picks are Dalmia Bharat, Shree Cement and Ambuja.

Industry volumes likely increased in high-teens MoM (up in high single-digits YoY) in Jun’21 and recovered to Apr’21 levels, owing to the easing of restrictions and premonsoon/pent-up demand. On a MoM basis, volumes likely grew >20% MoM in the North region, in high-teens in the East and South regions and in low double digits in the West and Central regions.

Industry volumes likely declined in mid-teens QoQ in Q1FY22, though significantly up YoY due to a low base. We expect a sustainable demand recovery in volumes in coming quarters on the back of gradual relaxations in lockdowns, expectations of construction activities gaining momentum post monsoon, low base of last two years, government focus on infrastructure spends, and strong Jun’21 exit. We model demand growth of 11.5% YoY (2-year CAGR: +5%) in FY22E.

Average pan-India prices rose marginally MoM (flat YoY) in Jun’21. On a MoM basis, prices have increased by 1-2% in the North, West and Central regions, offset by a 1-3% price decline in the South and East regions. Companies have announced a price hike of Rs10-15/bag MoM across regions in Jul’21 to ensure the sustainability of prevailing prices.

Q1FY22 average pan-India prices were likely up ~6% QoQ (flat YoY), which should largely mitigate the impact of various cost escalations during this quarter, in our view. Cement prices were likely up 8-10% QoQ in East and South regions, 6% in West, and 1- 2% sequentially in North and Central regions. Rising input prices (diesel, coal and petcoke) remain a key concern for the sector. However, in the past, companies have been able to pass on cost increases and sustain/improve profitability (as seen in FY12-13, 2017 to early 2018).

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