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Estimate volume growth of ~10% YoY for coverage universe in 4QFY24

* We estimate our coverage universe to report strong volume growth of 10% YoY (three-year CAGR at ~8%) in 4QFY24. Further, we estimate average capacity utilization of ~93% vs. ~91%/79% in 4QFY23/3QFY24. However, cement price corrected across regions in 4Q and the all-India average cement price was down ~7% (down INR25 per 50-kg bag) QoQ. We estimate blended realization for our coverage universe to decline ~3%/4% YoY/QoQ.

* Given the sharp price correction in 4QFY24, we estimate average EBITDA/t to decline ~12% QoQ to INR990 (vs. our earlier estimate of INR1,100), which would partly be offset by positive operating leverage and favorable fuel prices. Aggregate EBITDA is estimated to increase 24% YoY, while OPM is expected to improve by 2.6pp YoY to 18.2%.

* GRASIM’s revenue is estimated to decline 3% YoY. VSF volume is estimated to increase 5% YoY, while realization is estimated to decline 6% YoY (up ~1% QoQ). Chemical segment volume is estimated to increase 6% YoY, while realization could decline by 20% YoY. We expect the company’s EBITDA to increase 20% YoY and EBITDA margin to improve 1.6pp YoY to 8%. Adjusted PAT is estimated to grow 80% YoY.

Volume strong; however, weak pricing drive EBITDA/t reduction QoQ

* Following a moderate growth in 3QFY24, cement volumes experienced a significant surge in 4QFY24, driven by robust demand from infrastructure, realestate, and a pick-up in private capex. We estimate a ~15% YoY volume growth for JKCE, followed by ~11-12% for ACC, ACEM, BCORP, DALBHARA, and UTCEM, ~7-8% for SRCM, TRCL, and JKLC while, ICEM’s volume is estimated to remain flat.

* However, cement prices have undergone a correction across regions in 4QFY24. The East and South regions witnessed the highest decline of ~8-9% QoQ, followed by the North and West regions with a ~7% and Central India with ~3% decline. We estimate the blended realization for our coverage universe to decline by ~3%/4% YoY/QoQ.

* Average Opex/t for our coverage universe is estimated to decline 6% YoY (down 3% QoQ), supported by reduction in input material cost. We estimate average variable cost/t to decline INR314/t YoY (a decline of INR67/t QoQ).

*ACC and JKCE are estimated to report strong YoY EBITDA growth at ~74-75%. EBITDA is estimated to grow 45% YoY for BCORP, 27-28% YoY for JKLC and SRCM, and 13-18% for ACEM, DALBHARA, and UTCEM. EBITDA is likely to decline 3% YoY for TRCL. ICEM is likely to report EBITDA of INR475m vs. operating loss of INR445m in 4QFY23.

* We expect EBITDA/t of INR1,218 for SRCM (the highest in our coverage universe), followed by INR1,133 for JKCE and INR1,069/INR1,038 for UTCEM/ ACEM. EBITDA/t is estimated to fall within the range of INR790-970 for ACC, BCORP, DALBHARA, JKLC, and TRCL, with INR171 for ICEM.

Reduce earnings estimates to factor in sharp price correction

* Despite higher capacity utilizations (over 90%) during the quarter, cement prices corrected sharply across regions. This has led to lower profitability in 4Q and risk to our FY25/FY26 earnings estimate.  

 *Demand in 1HFY25 is estimated to be moderate due to the general elections till May’24-end, followed by the monsoon season. Further, continuous capacity expansions by leading industry players (UTCEM commissioned cement capacity of 11.4mtpa and SRCM commissioned 6.3mtpa in CY24-till date), and ramping-up of acquired assets are likely to keep prices under check.

* Given the lower exit prices of Mar’24 and increased competitive intensity, we do not foresee a sustainable price hike in the near term. Hence, we cut our aggregate EBITDA estimate by 3.7%/3.5% (including recent earnings cut for DALBHARA and SRCM in our company update notes) for FY25/FY26. This, in turn, led to 3.8%/5.0% reduction in aggregate profit for companies in our cement universe in FY25/FY26.

Earnings sensitivity to remain higher on price hikes 

* We estimate cement demand to register a CAGR of ~7% over FY24-26, higher than our estimate for clinker capacity additions (~6% CAGR over FY24-26). Further, the industry’s clinker utilization increased to ~79% in FY24 vs. ~76% in FY23. We estimate clinker utilization to further increase to 80%/81% in FY25/FY26.

* Fuel prices remain stable in the last few months, and we believe earnings sensitivity to remain higher, largely due to the pricing behaviors of industry players. Key risk to our estimate are: 1) substantial sustainable price hikes by the industry players to protect margins in an expected low demand environment till 1HFY25; and 2) increase in fuel prices.       

*We continue to prefer UTCEM in the large-cap space. We prefer DALBHARA and JKCE in the mid-cap space.

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