Cement Q2 preview: September volumes augur well for the quarter

We maintain our positive stance and see an upside risk to consensus estimates. SRCM and UTCEM remain our top picks.

With Sep’20 posting sharp uptick in volumes, management as well as consensus commentary on FY21e demand outlook is likely to turn incrementally positive. Overall, the industry may see 1-2% y-o-y growth during Q2FY21e with North, Central and East regions growing 7-9% y-o-y and South and West still down 12-14% y-o-y. Our coverage universe is likely to post strong 22% y-o-y Ebitda growth. Given weak exit pricing due to monsoon and mounting cost escalations, companies have announced price hikes of

Rs 10-30/bag across most regions w.e.f. Oct’20. We maintain our positive stance and see an upside risk to consensus estimates. SRCM and UTCEM remain our top picks. We also like ACEM, JKCE and TRCL. Coverage universe to see ~5% y-o-y volume growth during Q2FY21e

Though Jul-Aug’20 volumes likely declined in mid-single digit y-o-y, Sep’20 saw sharp ~20% m-o-m/>10% y-o-y growth. While rural and semi-urban housing demand continues to drive growth, pick-up in government-led infrastructure/low-cost housing aided growth in Sep’20. SRCM and JKCE are likely to see strong volume growth of 15% y-o-y and 25% y-o-y respectively. UTCEM/ACEM/DALBHARA may report 6% y-o-y growth with PRSMJ/HEIM likely to report 3-4% y-o-y growth. TRCL/ACC may report flat volumes y-o-y while ICEM/ORCMNT volumes may shrink by 16-22% y-o-y. Pent-up urban demand and non-trade demand should improve with gradual return of migrant workers post festive holidays in Nov’20.

Average pan-India prices up 1-2% y-o-y/ down 4-5% q-o-q in Q2FY21e

Average prices likely declined 2-3% q-o-q in West and South, and 4-6% q-o-q in North, Central and East regions. On a y-o-y basis, prices were sharply up 11% in South, 4% in West and almost flat in North, while it declined 5% in East and 2% in Central regions.

Average Ebitda/te may rise 17% y-o-y/ decline 14% q-o-q to Rs 1,144/te
Despite 13% y-o-y and q-o-q increase in diesel prices, total cost/te is likely to decline 4-5% y-o-y and remain broadly flat q-o-q owing to improving efficiencies, fixed cost rationalisation, and better operating leverage. Impact of sharp hike in domestic petcoke prices would start reflecting from Q3FY21e.

ACEM, JKCE, TRCL, DALBHARA and ICEM may see Ebitda growth of 30-40% y-o-y. Ebitda for UTCEM may increase 20% y-o-y and that for SRCM and ACC by ~10% y-o-y. SRCM, TRCL and DALBHARA are likely to lead with Ebitda/te of Rs 1,350-1,400/te; while UTCEM, ACEM, JKCE (blended) and HEIM may report Ebitda/te of Rs 1,100-1,200/te.

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