The announcement of a nationwide lockdown in lieu of Covid had a severe impact on sales volume in April with all-India level dispatches coming down by 85% YoY to 4.3 MT in April 2020. However, with partial lifting of lockdown, May and June saw good traction in dispatches. While May dispatches improved to 22.2 MT (down 22%, up 5.4x MoM), our interaction with the dealer network indicates further improvement in volume offtake for June with likely growth of ~1.2% YoY. With this development, overall negative impact for the sector and at the company level is expected to remain lower than estimated previously. The major demand driving force has been the rural and semi-urban segment, which kept the demand momentum pretty strong as it has been least impacted by Covid and also on account of bumper Rabi season estimated this year while urban construction activities continued to remain weak due to labour migration and extended lockdown. Hence, for Q1FY21E, I-direct cement coverage universe is expected to report ~30% decline in sales volume to 33.4 MT.
Lower volume to pressurise margins despite benign cost environment
While domestic and International pet coke prices declined by average 23% YoY, the benefit of the same would start getting visible from Q2 onwards as high cost inventory would get exhausted during the quarter. Freight cost may remain stable during the quarter due to absence of busy season surcharge. However, lower sales volume would increase cost of production as 30% of cost is fixed in nature. This would lead EBITDA/tonne to fall 24.4% YoY to Rs. 949/t for our entire coverage universe.
For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_Cement_Q1FY21.pdf