Mutual Funds Commodities Research Tax Planning IPO Our Team Contact Us  

| More

Cement & Building Materials (Tiles) - Results Preview - Robust Performance on Improved Volume - Reliance Securities

Posted On: 2021-01-12 03:52:45 (Time Zone: Arizona, USA)

Cement industry is expected to continue its robust performance in 3QFY21 as well, mainly led by rebound in volume notwithstanding cost pressure and sequential decline in average realization. A healthy recovery in demand scenario post monsoon led by pick-up in construction activities across regions augurs well for the cement companies. Higher sales volume and improving utilization are also likely to negate the adverse impact of higher fuel and input prices. Average sales volume of the cement companies under our coverage universe is expected to increase by ~7% YoY and 15% QoQ mainly led by sharp recovery in Eastern, Northern and Central markets. It is heartening to see that improvement in real estate demand contributed to quarterly volume growth, which has offset the adverse impact of softening demand from rural areas led by farmers' agitation on new Farm Bills. However, ~2% QoQ contraction in realization at all-India level, higher pet-coke prices (21% QoQ and 38% YoY rise in Reliance Petcoke price) and increase in discretionary expenditures are likely to negate the benefit of higher utilization. We expect lower realization and higher cost to impact EBITDA/tonne of the companies in the range of Rs60-330/tonne sequentially. Unitary EBITDA of the companies like Shree Cement (Rs1,261), UltraTech Cement (Rs1,214), Ramco Cements (Rs1,484), Sagar Cements (Rs1,265) and JK Cement (Rs1,184) are likely to remain healthy above Rs1,000. However, the other players are expected to report unitary EBITDA in the range of Rs600-950. Notably, average EBITDA and APAT of the cement companies under our coverage are likely to increase by ~38% and ~66%, respectively in 3QFY21.

Demand Witnessed Steady Recovery

Demand momentum, which remained soft in 1HFY21 owing to lockdown and monsoon, witnessed a healthy recovery in 3QFY21 mainly led by improved availability of labourers at work sites, continued traction in retail demand and pick-up in real estate demand. Notably, demand momentum in Eastern, Northern and Central regions continued to remain relatively better than other regions, while demand momentum in Western region also witnessed up-tick due to pick-up in real estate segment. The companies under our coverage universe are likely to witness average sales volume growth of 7.3% YoY. JK Cement is likely to report the best volume growth (up 24% YoY), followed by Shree Cement (up 15% YoY), Sagar Cement (up 13% YoY) JK Lakshmi Cement (up 11% YoY) and UltraTech Cement (up 10% YoY).

Weak Realisation & Higher Operating Cost to Weigh on Performance

Contrary to expectation, average realization witnessed further sequential contraction, which along with higher operating cost (led by surge in diesel and pet-coke prices) is likely to negate the impact of higher capacity utilization on sequential basis. Our channel check suggests that all-India average price (trade segment) declined by 1.8% QoQ (up 4.3% YoY) with all regions barring Northern region, which witnessed sequential decline in the range of 1.3-2.8%. Further, drop in non-trade prices was bit steeper than the trade segment. Hence, we expect the companies to report average 2-3% sequential price drop during the quarter. Additionally, pet-coke prices (domestic and USA) soared >20% QoQ, which along with impact of higher diesel prices is likely to impact EBITDA/tonne of the companies under our coverage to the extent of ~Rs60-330 on sequential comparison.

Building Materials: Volume Trajectory Improved Led by Rebound in Export & Domestic Demand

As per our channel check, volume of the organized tiles manufacturers witnessed sharp improvement on the back of opening up of export markets and sustained domestic demand mainly aided by pick-up in demand in affordable housing segment in Tier-II and Tier-III cities. Additionally, shift of consumers' preference towards organized and branded players has also aided the volume performance of the organized players. We expect sales volume of Kajaria Ceramics and Somany Ceramics to increase by ~11.5% YoY and ~12.8% YoY, respectively. Further, stable realization, low gas prices and improved utilization are likely to help the companies to register double-digit growth in profitability.

Our View: Cement industry is expected to see healthy demand traction in 4QFY21E and FY22E mainly led by sustained improvement in construction and real estate activities. Strong demand from rural markets led by favourable monsoon, visible traction in real estate demand and governments' persistent focus on expediting infrastructure activities are likely to remain the key tailwinds for the industry. However, sharp rise in fuel prices and absence of price hikes could be near-to-medium-term concerns for the industry. UltraTech Cement, JK Cement and JK Lakshmi Cement continue to remain our preferred picks.

Our Top Results Picks: UltraTech, Ramco Cements, Shree Cement and JK Cement


Source: Equity Bulls

Click here to send ur comments or to

Disclaimer:The article above is a gist / extract of the original report prepared by the research firm / brokerage firm. This article is not to be considered as an offer to sell or a solicitation to buy any securities. This article is meant for general information only., its employees or owners or the research firms, its employees or owners won't be responsible for any liability that may arise from information, errors or omissions in these articles. or its employees or owners / the research firms or its employees or clients or owners may from time to time hold positions in securities referred in this article. For detailed research reports, please contact the concerned research firm directly.

Other Headlines:

4th Industrial Conclave - Bullish undertone, favourable valuation - HDFC Securities

Sanofi India - Weak quarter; sequential improvement - ICICI Securities

Sunteck Realty - All eyes on upcoming launches - ICICI Securities

Company Update - Tata Motors - ICICI Direct

Q4CY20 Company Update - Mahindra CIE Automotive - ICICI Direct

Event Update - Hindalco - ICICI Direct

EY report launch at BioAsia 2021 - Moving the needle: Healthcare industry in a post-COVID world

Initiating Coverage - Dalmia Bharat Ltd - HDFC Securities Retail Research Desk

Initiating Coverage - Mastek Ltd - HDFC Securities Retail Research Desk

Hindalco Industries - Status quo maintained - ICICI Securities

Tata Motors - India business scaling in the right direction - ICICI Securities

IPO Review - Heranba Industries Ltd

Company Update - Narayana Hrudayalaya - ICICI Direct

Ambuja Cements - Market share sustenance key for rerating - ICICI Securities

ADD on Astral Poly Technik - An 'astr'onomical growth story - HDFC Securities

FMCG Sector Update Report - Divergence narrows; refocus on core - HDFC Securities

Maintain REDUCE on Jubilant FoodWorks - More legs for growth; reflecting confidence on core - HDFC Securities

Torrent Power - Growth acceleration - ICICI Securities

Mahindra CIE Automotive - CY20 performance closes on a strong note - ICICI Securities

Q3FY21 Company Update - V-Guard Industries - ICICI Direct

Quant Pick - Indus Towers - ICICI Direct

Q4CY20 Result Update - Ambuja Cement - ICICI Direct

Q3FY21 Company Update - Nesco Ltd - ICICI Direct

Maintain BUY on Ambuja Cements - Healthy quarter; multiple triggers ahead - HDFC Securities

Heranba Industries Ltd. - IPO - Sound Financials & Promising Outlook Augur Well

India Equity Strategy Report - Quarterly flipbook: Q3 - upgrades galore! - HDFC Securities

Earnings Wrap Q3FY21: Encouraging quarter, broad based recovery under way!

Shilpa Medicare - USFDA import alert at Jadcherla unit - ICICI Securities

Q3FY21 Company Update - Indian Bank - ICICI Direct

Quant Pick - Torrent Power - ICICI Direct

GE T&D India - Strong cashflow - ICICI Securities

Q3FY21 Result Update - Graphite India - ICICI Direct

Q4CY2020 Result Update - Varun Beverages - ICICI Direct

Q3FY21 Company Update - NBCC Ltd - ICICI Direct

Quant Pick - United Breweries - ICICI Direct

Q4CY2020 Result Update - Nestlé India - ICICI Direct

Q3FY21 Result Update - Time Technoplast - ICICI Direct

Healthy Business Performance Puts ITC Stock Recovery on Track

Gold - Feb 17, 2021 - Reliance Securities

Maintain REDUCE on Nestle India - Steady revenue show; employee cost dents margins - HDFC Securities

Varun Beverages - Q4 CY20 Result and Concall Update - YES Securities

Nestle India - Q4 CY20 Result Update - YES Securities

Reiterate BUY on JMC Projects - Some hits, some misses - HDFC Securities

Varun Beverages - Strong volumes; higher margins - ICICI Securities

Computer Age Management Services - Play on industry AUM growth - ICICI Securities

Nestle India - Just a tad underwhelming (given the high benchmarks expected from Nestle India) - ICICI Securities

NHPC - Earnings robust; projects on track - ICICI Securities

Maintain BUY on ITD Cementation - Gradual recovery shaping up - HDFC Securities

Techno Electric & Engineering - Strong margins, healthy growth outlook - ICICI Securities

Time Technoplast - Outlook upbeat; execution remains key - ICICI Securities

Website Created & Maintained by : Chennai Scripts
West Mambalam, Chennai - 600 033,
Tamil Nadu, India

disclaimer copyright © 2005 - 2020