Our channel checks suggest cement demand has further improved by 8-10% MoM in Oct'20 on the back of ~20% MoM improvement seen during Sep'20. This would translate to mid-teens YoY growth for Oct'20 on low base (down ~8% YoY during Oct'19) due to shift of festive holidays to Nov'20 this year. Management as well as consensus commentaries on FY21E demand outlook are likely to turn incrementally positive. We continue to factor-in low single-digit decline in industry volumes for FY21E vs consensus view of at least low double-digit decline. Average pan-India prices rose by Rs10/bag MoM (up 5% YoY) in Oct'20 led by Rs15/bag MoM increase in North and West regions, mainly to mitigate recent cost increases. Consensus FY21E-FY22E EBITDA for ACC/ACEM/UTCEM have been upgraded by 15-25% over past four months and we see upside risk to these estimates. SRCM and UTCEM remains our top picks. We also like ACEM, JKCE and TRCL.
- Industry volumes expected to grow in mid-teens YoY to ~31mnte during Oct'20 (our estimate) with pan-India utilisation at ~80%. UTCEM in its recent Q2FY21 result call indicated that its utilisation rose to >80% in Oct'20 vs 73-74% in Sep'20. This would imply 85-90% utilisation in North, Central and East regions with South and West operating at sub-70% in Oct'20. Given shift of festive holidays to Nov'20 this year, combining Oct-Nov volumes together would be better for more meaningful comparison. While rural and semi-urban housing demand continues to drive growth, pick-up in government-led infrastructure and non-trade demand likely aided growth in Oct'20. Pent-up urban demand and non-trade demand, especially in South and West, may improve going ahead with the gradual return of migrant workers.
- Huge divergence in regional growth continues: North is likely to post strong >20% YoY growth (extended monsoon / construction ban in NCR impacted volumes last year) with Central and East regions likely to see 10-15% YoY growth. South and West regions are seeing MoM improvement (despite extended monsoon this year) and would broadly turn flat YoY (on 15% YoY decline last year).
- Average pan-India prices up 5% YoY during Oct'20 led by ~13% YoY increase in South. Prices are up 5-6% YoY in North and West and almost flat YoY in East and Central regions during Oct'20. On a MoM basis, North and West regions saw ~Rs15/bag price increase while rest of the regions saw Rs5-7/bag MoM increase. Demand improvement amidst delay in clinker additions by UTCEM (Super Dalla in Central region) and ACEM (Marwa-Mundwa in North) would likely lead to >90% utilisation in North and Central regions during H1CY21 and may lead to strong prices in these regions, in our view. Companies may partially switch to coal owing to sharp increase in pet coke prices, which may impact productivity in the interim leading to high rated-capacity utilisation.