Cement Sector Update - Price hike is key monitorable By Emkay Global
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Monthly Update: Price hike is key monitorable
* Our channel checks suggest that average pan-India prices increased by 2-3% MoM (up 3% YoY) in Jan’22, with a major price hike witnessed in the East region. Industry volumes likely declined by low single digits YoY. There was a regional disparity in demand, with the East, West and South regions witnessing better demand.
* Input costs (coal/ imported petcoke) increased by more than 10% last month owing to Indonesia’s ban on exports and increasing crude prices. Accordingly, variable cost/ton is likely to remain elevated in H1CY22, in our view.
* In Feb’22, the industry has announced a price hike of Rs10-15/bag across most regions and Rs20-30/bag in South. The price hike and its absorption will be the key monitorable over the next few months.
* We maintain our positive view on the sector. Our top picks are Ultratech, Ambuja and Shree Cement. We also like Birla Corp in mid-caps.
Our channel checks suggest that average pan-India prices increased by 2-3% MoM (up 3% YoY) in Jan’22, with a major price hike witnessed in the East region. Average prices increased sharply in East by 6-8% MoM and 1-2% in other regions. On a YoY basis, average prices were up 3% YoY in Jan’22, with a 5-8% increase in the North, Central and West regions, 2% in the East and broadly flat YoY in South.
In Feb’22, the industry has announced a price hike of Rs10-15/bag across most regions and Rs20-30/bag in South. The price hike and its absorption will be the key monitorable over the next few months.
Industry volumes likely declined by low single digits YoY (up by low single digits MoM) in Jan’22. Improving availability of labor/sand, receding monsoon, a pick-up in government-backed infra projects and pent-up demand led to volume growth on MoM basis. There was a regional disparity in demand, with the East, West and South regions witnessing better demand. Demand in the North and Central regions was affected by extremely cold weather.
Input costs (coal/ imported petcoke) increased by more than 10% last month owing to Indonesia’s ban on exports and increasing crude prices. Accordingly, variable cost/ton is likely to remain elevated in H1CY22, in our view. The industry continues to focus on cost optimization, de-risking efforts and ESG adherence through improving the blending ratio, freight optimization and increasing share of green power. After an over 40% increase in the past two years, industry EBITDA/ton is expected to decline by 10% YoY in FY22 but likely to see a 5-6% CAGR over FY22E-24E.
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