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Our sector coverage companies are expected to see EBITDA growth of 12% YoY (+2% QoQ), largely led by strong volume growth (>15% YoY) and partly balanced by the muted cement prices, given decline of 3% YoY/1% QoQ in Q1FY24. Total cost/ton would drop 2-3% YoY and QoQ, with lower input prices; however, this would be partially offset by lower operating leverage on QoQ basis. Accordingly, we estimate average EBITDA/ton to witness a marginal sequential recovery to Rs963 (+Rs37 QoQ; Rs49 YoY decline) as the inventory lag delays the cost benefit to Q2/Q3FY24. Top pick: UltraTech

* Coverage companies’ volumes to increase 18% YoY/decline 2% QoQ Our channel checks suggest industry demand is likely to have seen a mid-teens YoY growth in Q1FY24. We estimate 18% YoY volume growth for our coverage companies, while QoQ drop in volumes seems to be arrested at 2% vs the usual QoQ decline of 7- 8% in Q1. UltraTech has already reported volumes of 30mt (+20% YoY; decline of 5% QoQ), implying a 700bps improvement in capacity utilization to 90% in Q1FY24. Ramco Cements is likely to lead, with ~35% YoY volume growth. ACC/Ambuja would possibly register 17-20% YoY growth at the standalone level. They are also likely to log positive volume growth QoQ, owing to restart of the HP plant. Dalmia volumes would potentially grow 13% YoY in Q1FY24E. We expect demand to remain healthy in FY24, given the strong traction in government-backed projects aided by the General Elections in CY24.

* Average realization likely to decline 3% YoY/1% QoQ in Q1FY24E Cement prices are likely to have declined 1-2% QoQ in the East and South, while likely remaining broadly flat sequentially in other regions, in Q1FY24. On a YoY basis, average pan-India prices would likely decline 3% YoY, due to 4-5% YoY decline in the North, East and South; prices are expected to be marginally down in the western and central regions.

* Average EBITDA/ton to decline 5% YoY/increase 4% QoQ to Rs963 in Q1FY24E UltraTech, Ambuja and Shree are expected to lead with >Rs1,000/ton EBITDA, followed by Dalmia Bharat and JK Cement with >Rs900/ton EBITDA. Ramco is likely to see decline of 7% YoY/4% QoQ to Rs845 in EBITDA/ton. ACC, Ambuja and Ramco would possibly see 25-35% YoY growth in EBITDA, followed by Shree and Dalmia at 13% YoY EBITDA. UltraTech and Birla Corp would potentially see 6-7% YoY EBITDA growth in Q1FY24E.

* Cost deflation to support profitability in coming quarters Due to the inventory-lag impact, most cement companies under our coverage have guided for cost benefits to accrue by Q2/Q3FY24. With international petcoke prices declining over 60% from their peak to Rs250/ton are likely to reflect in 9MFY24E (~Rs60-80/ton in Q1FY24E).

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