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Weak print, yet gradual recovery aligns with expectations

Estimate ~8% YoY volume growth for our coverage universe in 3QFY25

* After a subdued demand growth of ~1-2% YoY in 1HFY25, cement demand has improved in 3QFY25. However, regional headwinds such as pollution-related curbs in Delhi-NCR, scarcity of sand, and other aggregates in Odisha; and unfavorable weather conditions (severe cold and unseasonal rains) in certain regions during the quarter have weighed on overall demand growth. We estimate our cement coverage universe to report a volume growth of ~8% YoY in 3QFY25, supported by a low base, pent-up demand, and a pickup in construction activities. We estimate an average grinding capacity utilization of ~75% vs. ~76%/70% in 3QFY24/2QFY25.

* Cement prices have also experienced an upward trend, driven by MoM price hikes of ~3-5% (INR10-15/bag) in Dec’24 across regions. The all-India average cement price grew ~2% QoQ (down ~5% YoY) in 3QFY25. We estimate the blended realization for our coverage universe to improve 1.3% YoY (down ~8% YoY). Our channel check suggests that industry players may announce additional price hikes in the near term. However, their sustainability will need to be monitored. We estimate the aggregate revenue/EBITDA for our cement coverage universe to decline ~2%/22% YoY to INR428.2b/INR67.8b and OPM to contract 4.3pp YoY (up 3.3pp QoQ) to ~16%. We estimate the average EBITDA/t for our cement coverage to decline ~28% YoY (up 28% QoQ) to INR842.

* GRASIM’s revenue is estimated to increase 30% YoY, aided by contributions from high-growth businesses (Paints and B2B Ecommerce). VSF volume/ realization is estimated to grow ~7%/6% YoY and chemical segment volume/realization is likely to increase ~2%/12%. Overall EBITDA is estimated to decline 11% YoY to INR4.6b and OPM will be at ~6%, down 2.6pp YoY due to losses in high-growth businesses. It is estimated to report PAT of INR14m (down 99% YoY) led by higher depreciation and interest costs.

Demand improves; quarter-end price hikes boost OPM sequentially

* Cement volume growth is estimated at ~8% YoY in 3QFY25. Volume declined ~10-11% YoY in Oct’24 due to festivals (Durga Puja and Diwali). However, it recovered in Nov-Dec’24 (up ~18-20%) YoY, aided by a low base, pent-up demand, and a pickup in construction activities following the monsoon and festivals. We estimate volume growth of ~10-11% YoY for ACEM (Consol.), ACC, and UTCEM, followed by ~7-9% for TRCL and ICEM, ~4-5% for DALBHARA and JKCE, and ~2-3% for BCORP and SRCM. Volume for JKLC is estimated to decline ~2% YoY.

* The average opex/t for our coverage universe is estimated to decline ~4%/2% YoY/QoQ, led by positive operating leverage and favorable fuel prices. Average imported petcoke price was down ~24%/9% YoY/QoQ in 3QFY25, while domestic petcoke price was down 15%/6% YoY/QoQ. We estimate the average variable cost/t to decline 5%/3% YoY/QoQ, while freight cost/t will remain flat YoY (up 2% QoQ). We estimate other expenses/t to decline ~7%/8% YoY/QoQ.

* We estimate an EBITDA/t of INR995 for SRCM (the highest within our coverage universe), followed by INR943 for JKCE, and INR925 for UTCEM. EBITDA/t for ACEM is estimated at INR848, while it is between INR600 and INR800 for ACC, BCORP, DALBHARA, JKLC, and TRCL. ICEM’s operating loss/t is estimated at INR402.

* We estimate UTCEM and TRCL to report an EBITDA decline of ~14-18% YoY, followed by ~21-27% YoY decline for ACEM (Consol.), SRCM, DALBHARA, and JKCE and ~30-37% decline for ACC, BCORP, and JKLCE. ICEM is estimated to report an operating loss of INR854m compared to EBITDA of INR490m in 3QFY24.

Sector outlook and recommendations

* There are signs of recovery in cement demand after the festive seasons, and we estimate industry volume growth of ~8-9% YoY in 2HFY25, driven by pent-up demand, an expected rebound in government spending, and robust demand in the real estate and housing sectors. Strong volumes growth and improvement in clinker utilizations (estimated to peak out in 4QFY25) will support price hikes in the industry. We maintained earnings estimates for our coverage companies for FY25-27. Further, we shift our valuation multiples for our coverage companies to Dec’26E from Sep’26E.

* We are structurally positive on the industry. We prefer players with a balanced geographic mix, higher capacity utilizations, and a strong track record of capacity expansion and successfully integration. Further, we are positive on companies that have a strong presence in the North, Central and West regions. We believe these regions are less vulnerable to the demand-supply mismatch and volatility in the cement price.

* We prefer UTCEM and ACEM in the large-cap space, while JKCE is our preferred pick in the mid-cap space

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