IGI Logo

Price sustenance is key

* We hosted three dealers from different parts of India at our ‘Emkay Konnect’ Festive Conference held on October 11, 2021.

* Key takeaways: 1) The all-India average cement price fell ~1% MoM in Sep’21 and ~3% QoQ in Q2FY22; 2) Cement prices have increased by Rs30-50/bag in the south region and Rs10-15/bag MoM in other regions in Oct’21; 3)

* Companies are planning another price hike of Rs10-15/bag in the second fortnight of Oct’21; 4) Industry volumes likely increased 4-5% YoY (broadly flat QoQ) in Q2FY22; 5) Demand is likely to pick up from mid-Oct’21 as monsoons recede and the inauspicious ‘Pitru Paksha’ period ends.

* Sustaining the price hike will be key to restoring positive sentiment and limiting any earnings downgrades, in our view.

* We maintain our positive view on the sector. Our top picks are Ultratech (Buy, TP Rs8,500), Shree Cement (Buy, TP Rs31,200), and Ambuja Cement (Buy, TP Rs445).

* The average pan-India price declined ~1% MoM in Sep’21 and ~3% QoQ in Q2FY22. Cement prices likely declined by ~5-7% QoQ in the south and east regions and by 1-2% QoQ in other regions in the quarter. Price hike attempts did not fructify in Sep’21 as demand moderated, especially in the second fortnight, owing to a pick-up in monsoons.

* Cement prices have likely increased by Rs30-50/bag in the south region and Rs10- 15/bag MoM in other regions in Oct’21, necessitated by high costs. Companies are planning another price hike of Rs10-15/bag in the second fortnight of Oct’21. The sustenance of the price hike will be key to restoring positive sentiment and limiting any earnings downgrades, in our view.

* Industry volumes likely increased 4-5% YoY in Q2FY22 but remained broadly flat QoQ. The south and west regions are likely to lead, with high-teens YoY growth on a low base. The north and central regions should see growth in low-single digits YoY. The east region is likely to see a mid-single digit decline YoY on a high base as it was impacted by floods in Bihar, transporters’ strike in Chhattisgarh and sand availability issues in West Bengal. Dealers mentioned that demand is likely to pick up from mid-Oct’21 as monsoons recede and the inauspicious ‘Pitru Paksha’ period ends.

* We expect average EBITDA/ton to decline by 8% YoY and 16% QoQ to Rs1,240 in Q2FY22, largely due to increased costs. JK Cement and Ambuja should see 4-7% YoY growth. Ultratech and ACC should register flat EBITDA. Shree, Dalmia and Ramco may report a 13-19% decline in EBITDA on a YoY basis.

To Read Complete Report & Disclaimer Click Here

For More  Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354

Above views are of the author and not of the website kindly read disclaimer