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Cement demand dropped sharply in Apr’22 following a strong volume traction in Mar’22. The volume run-rate remained stable over the course of the quarter. Overall, rail freight data indicates a 8% QoQ decline; +14% YoY. The slowdown in demand in 1Q on a sequential basis is primarily owing to seasonality. We are factoring in a sequential volume change of - 4% to -10% QoQ for 1QFY23 factoring in the commissioning of the capacities and exposure to different geographies (0% to +40% YoY). Owing to low base of last year, overall volumes are expected to report a strong growth of 14% YoY. Average cement prices declined successively over the quarter after a sharp rise in Apr’22. Regionwise Central (+11% QoQ), West (+6% QoQ) and North (+4% QoQ) witnessed a sharp uptick in 1Q while other regions have remained largely stable sequentially. Average cement prices are expected to report 3% QoQ rise. On the cost front, we are expecting a hardening of INR 100-110/t as the rise in commodity costs and fixed costs are expected to be offset by rising cement prices. Sharp uptick in commodity prices in 4Q is expected to show up in the variable costs in 1QFY23. Cumulative EBITDA is expected to report a decline of 7% QoQ (-17% YoY), largely led by rising commodity prices and lower volumes. Average EBITDA/t to witness an uptick of 1% QoQ to INR 995/t (- 29% YoY), varying -15% to +53% QoQ for the 11 companies under coverage. Rise in variable costs will be offset by strong rise in cement realisations led by price hikes in Central, West and North. However, desired price hikes to offset the cost escalations still eludes the industry. We expect Dalmia Bharat and Ramco Cement to outperform peers. Muted pricing trend despite rising costs will drive the downgrade in estimates post results.

* Demand remained stable over the course of the quarter: Cement demand witnessed a sharp decline in Apr’22 following a sharp volume uptick in Mar’22. The volumes remained stable over Apr-Jun’22. As per the rail freight data, cement volumes transported witnessed a sequential decline of 8% in 1Q. Channel checks suggest the demand moderation is owing to seasonality. We are factoring in -6% to -10% QoQ change in the cement volumes across coverage companies (+14% YoY) factoring in the capacity additions and regional exposure.

* Central, West and North regions witnesses sharp price hikes, while other regions to report flat to marginally negative trend QoQ; factoring in realisation change of 3% QoQ: Sharp rise in the cement price in Apr’22, primarily in Central, Western and Norther regions drove the average prices up by +4% on a QoQ basis despite the successive decline over the course of the quarter. Other regions largely witnessed a stable pricing trend despite the escalating costs. For the coverage companies, we are factoring in a realisation change in the range of 0% to +4.5% QoQ based on the regional exposure.

* Wtd average EBITDA/t to witness a marginal rise sequentially as the benefit of realisations offset the impact of rise in manufacturing costs: We expect the impact of sharp increase in pet-coke and coal prices to be visible in the costs in 1Q. The continued elevated commodity prices will continue to impact the margins in 1st quarter. However, stable diesel prices will help the freight costs to remain stable QoQ. The rise in the variable costs is expected to be more than offset by rising cement realisations (+4% QoQ). We are factoring in -15% to +50% QoQ change in EBITDA/t for the coverage companies (+1% QoQ rise in weighted average EBITDA/t).

* Ramco Cement and Dalmia Bharat to outperform: We expect Ramco Cement and Dalmia Bharat to outperform peers in volume growth on a YoY basis. Muted pricing trend despite rising costs will drive the downgrade in estimates post results in 1Q too. Commentary on cement prices and demand will be key

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