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Our channel checks suggest industry volumes are likely to report flat to low single-digit volume growth YoY (despite high base) during Aug’22 to ~29mnte, implying a relatively strong pan-India clinker utilisation at ~70% this monsoon. MoM volumes may be down 6-8%, in-line with seasonality. On the pricing front, average pan-India prices fell ~2% MoM in Aug’22 largely due to 4% MoM dip in East India. However, prices were hiked by Rs15-20/bag (up 4-4.5%MoM) in East and West India (in the non-trade segment) w.e.f. 6th Sep’22 with possibility of a further hike of Rs15/bag from mid-Sep’22 in East India. Spot international petcoke prices have slightly increased to US$196/te (CIF) in Sep’22 (up ~3% MoM), though it has corrected ~30% from peak in Apr’22. Similarly, domestic petcoke prices declined ~30% from its peak in Jun’22 to Rs16,000/te in Sep’22. Assuming fuel prices sustain at current levels (or correct further) coupled with price hikes / current price hike absorption, we expect risk-reward to turn favourable in the medium-term perspective as margins / consensus earnings downgrade has likely bottomed out. UTCEM and SRCM remain our top picks. We also like JKCE and JKLC. Key risks: price rollback and cost escalations.

*  Industry volumes likely to report flat to low single-digit growth YoY despite the high base of Aug’21, which was up >35% YoY. On regional basis, volumes declined by high single-digit YoY in West and Central India due to heavy rainfall while East and South India are likely to report low to mid single-digit growth led by robust demand in the infrastructure segment. Volumes in North India were broadly flat YoY. Further, cumulative rainfall till date has been ~5% above normal, which we believe augurs well for IHB demand from H2FY22 onward.

* Pan-India average prices corrected by ~2% MoM in Aug’22 as prices fell – the steepest fall being in North and East India by 3% and 4% respectively followed 1.5% dip in South India. However, prices were increased by Rs15-20/bag (up 4-4.5% MoM) in East and West India (in the non-trade segment) w.e.f. 6th Sep’22 with possibility of a further hike of Rs15/bag in mid-Sep’22 in East India. Checks in North and Central regions suggest likelihood of price hikes from the first week of Oct’22

* Fuel cost pressures ease; more sustained reduction required: Despite average international petcoke prices slightly inching up to US$196/te (CIF) in Sep’22-TD (up ~3% MoM), it has corrected ~30% from its peak in Apr’22 – and is now up only 10% YoY. Similarly, domestic petcoke prices are down by ~30% from peak (Jun’22) to Rs16,000/te. Further, spot Indonesian coal is now available at US$168/te, which is 13% lower from peak in Jun’22. Along with Russian coal (US$165/te CFR), Venezuelan petcoke is also available at US$128/te (CFR), which we believe may result in fuel cost/te declining by ~Rs300/te QoQ from Q3FY23 onward.

* Industry average EBITDA/te could still decline in Q2FY23, turn broadly flat in Q3FY23 and start to inch up from Q4FY23 – both on QoQ and YoY basis (assuming the spread between cement and fuel prices sustains or improves from current levels). While near-term stock price performance would hinge on the said spread, we believe risk-reward is favourable in the medium-term perspective as margins / consensus earnings downgrades have likely bottomed out. Although >100mnte capacities are announced to be added over the next 3-4 years, incremental demand, production discipline and receding cost pressures may allow the industry to revert to FY21 EBITDA/te by FY24E-FY25E, in our view.

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