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Margin at a two-year high

Triple-digit PAT growth for the second consecutive quarter

We expect volume growth for our cement coverage universe to moderate in Q3FY24. Despite this, cement firms are expected to show robust YoY improvement in profitability for the second consecutive quarter, primarily aided by healthy realization and benign operating cost. We expect revenue to improve by ~8% YoY and ~6% QoQ. Further, EBITDA is likely to surge ~54% YoY and ~26% QoQ whereas PAT should jump ~103% YoY and ~31% QoQ.

Sales volume to improve ~6% YoY and ~3% QoQ

The start of Q3FY24 witnessed a positive trend with improved demand in most markets during October, led by the post-Monsoon revival in construction activities. However, demand softened in November, followed by a partial recovery in December. We believe several factors contributed to this, including the State elections, an extended festival season, and region-specific challenges, such as lower sand availability in Odisha and Nagpur, pollution curbs by Delhi and the National Capital Region (NCR) alongside the impact of cyclone on Telangana. As a result, the industry is expected to see moderation in YoY volume growth in Q3, following the strong trend observed in the past six quarters. Overall, we expect our coverage universe to report volume growth of ~6% YoY and ~3% QoQ. The outliers are likely to be JK Cement (JKCE IN) on the positive side and Nuvoco Vistas Corporation (NUVOCO IN) on the negative side. Among large caps, Shree Cement (SRCM IN) should lead in YoY volume growth while JK Cement (JKCE IN) among midcaps.

Realization to remain higher YoY and QoQ

In September, cement firms took sharp price hikes, primarily in East India, and this upward trend continues in October, reflecting a MoM uptick in prices across regions. However, this positive momentum was short-lived, and cement prices gradually declined in the remaining two months of Q3. Additionally, during our channel checks, we observed cement firms in several pockets offered higher discounts to channel partners. Thus, we expect realization of our coverage universe to rise by ~2% YoY and ~2% QoQ. Cement firms with higher exposure to East and South India should report a sharper improvement in realization.

EBITDA/tonne to surge ~43% YoY and ~22% QoQ

We believe cement firms under our coverage universe will benefit from lower operating cost, led by lower fuel prices and internal cost-saving measures. Thus, we expect operating cost/tonne to fall ~4% YoY and ~2% QoQ.  Overall, we expect EBITDA/tonne to jump by ~43% YoY and ~22% QoQ, led by steady volume, healthy realization and a fall in operating cost.

Outlook: earnings to remain healthy in Q4FY24

The onset of a busy construction season and healthy pre-elections government spending are expected to bolster industry volume in Q4FY24. Rising demand is likely to lend support to cement prices, further benefiting the industry. Apart from that, cement firms are expected to be in a favorable position regarding cost, primarily due to fuel prices remaining subdued and advantages gained from operating leverage. Thus, we expect a healthy rise in earnings for cement firms in Q4FY24.

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