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Demand softens; cement prices remain muted

Estimate ~5% YoY volume growth for our coverage universe in 1QFY25

* We estimate our cement coverage universe to report a volume growth of ~5% YoY (three-year CAGR of ~14%) in 1QFY25. Further, we estimate an average capacity utilization of ~85% vs. ~88%/95% in 1QFY24/4QFY24.

* The cement price remained muted during the quarter, and the all-India average cement price was down ~4% YoY/1% QoQ in 1QFY25. Similarly, we estimate the blended realization for our coverage universe to contract ~4%/1% YoY/QoQ.

* We estimate the average EBITDA/t to decline ~1% YoY (down 11% QoQ) to INR895, as weak cement prices offset the benefit of lower variable costs. The aggregate EBITDA of our coverage universe is estimated to increase by a mere 3% YoY, while OPM is likely to improve marginally by 50bp YoY to 16.7%.

* GRASIM’s revenue is estimated to increase 11% YoY. VSF volume is estimated to grow 13% YoY, while realization is estimated to contract 6% YoY (flat QoQ). Its chemical segment’s volume is estimated to increase 11% YoY, while realization could decline 5% YoY. Further, EBITDA is likely to dip 15% YoY to INR5.7b and OPM will be at ~8%; down 2.5pp YoY. PAT is estimated to decline 71% YoY.

Volume growth moderates; muted prices lead to subdued performance

* Following a strong growth (in the range of ~8-19% YoY) over eight consecutive quarters (1QFY23-4QFY24), growth in cement volume is estimated to moderate to ~5% YoY in 1QFY25 amid general elections during the quarter. We estimate 7- 9% YoY volume growth for DALBHARA, JKCE, SRCM, and TRCL, followed by 3-5% growth for ACC, ACEM, BCORP, and UTCEM, and ~2% growth for JKLC. However, ICEM’s volume is estimated to decline ~15% YoY.

* Further, cement prices remained muted during the quarter due to softness in demand. Cement prices in the East and South regions were down ~4% YoY each, followed by ~3% YoY dip in the North, Central and West regions. We estimate the blended realization for our coverage universe to decline ~4%/1% YoY/QoQ.

* Avg. opex/t for our coverage universe is estimated to decline 5% YoY (up 1% QoQ), largely due to a reduction in variable/freight costs. We estimate the avg. variable cost/t to decline by INR192 YoY and freight cost/t to dip by INR50 YoY.

* We estimate JKLC and SRCM to report an EBITDA growth of 27% YoY (each), followed by 17%/15% YoY growth for BCORP/JKCE and ~6% YoY growth for UTCEM. Conversely, we expect EBITDA to decline ~5%/8% YoY for ACC/TRCL, ~13% for DALBHARA, and ~24% for ACEM. ICEM is estimated to report an EBITDA surge of 5.7x YoY on a low base.

* We estimate an EBITDA/t of INR1,239 for SRCM (the highest within our coverage universe), followed by INR1,030 for UTCEM, and INR949 for JKCE. EBITDA/t is estimated to be between INR712 and INR802 for ACC, ACEM, BCORP, JKLC and DALBHARA, and INR679 for TRCL. ICEM’s EBITDA/t is estimated at INR127

Sector outlook and recommendations

* We estimate the cement demand momentum to improve due to the govt’s intensifying focus on affordable housing and infrastructure development (expanding rail, roads, and construction of airports), continuing strong demand from real estate, and likely pick-up in industrial capex. We believe the announcements under the forthcoming Budget will be the key monitorables.

* We estimate cement demand to register a CAGR of 7.5% over FY24-27, higher than our supply growth estimate of ~7.0% over the same period. Further, we estimate clinker utilization to improve to 81% by FY27 from 78% in FY24.

* We shift our valuation multiples for our coverage companies to Jun’26E from FY26E. We prefer UTCEM and GRASIM in the large-cap space while, JKCE and JKLC are our preferred picks in the mid-cap space.

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