Cement - Seasonal price hikes likely from mid-January - ICICI Securities

Our channel checks suggest industry demand likely grew in low single digit YoY during Dec'20, while average pan-India prices corrected 3-4% MoM (still up 5% YoY) owing to volume push (by calendar year-end companies) and fight for higher market share. Volumes and prices both are likely to be up 5-6% YoY during Q3FY21E, which would drive >25% YoY EBITDA growth. Key trigger to watch out for, would be seasonal price hikes which usually start from mid-Jan'21 as peak construction period sets in and also necessitated this time by cost escalations. We remain optimistic about the imminent price hikes. SRCM and UTCEM remain our top picks. We also like ACEM, JKCE and TRCL.

- Industry volumes expected to grow 5-6% YoY during Q3FY21E to 91mnte (our estimate) with pan-India utilisation at ~75%. While the first half of Dec'20 was weak in terms of demand, it gained momentum during the second half. Overall, North, Central and East are likely to see >10% YoY growth during Q3FY21 while we expect South to post 7-8% YoY decline and West to be broadly flat YoY. Low base of Mar'20 would result in strong mid-teens YoY growth during Q4FY21E. We continue to factor-in low single-digit decline in industry volumes for FY21E (since Apr'20).

- Average pan-India prices up 5% YoY in Dec'20 led by 18% YoY rise in South and 3-5% YoY increase in West, North and Central regions. Prices corrected sharply in East by Rs15-30/bag MoM and are down 7% YoY to almost 3-year lows. On a MoM basis, prices corrected by 3-4% across most other regions.

- Average pan-India prices up 6% YoY during Q3FY21 led by 18% YoY rise in South and 4-6% YoY increase in West, North and Central regions while prices in East are down 4% YoY. On a QoQ basis, average pan-India prices are likely down ~3% QoQ led by 5% QoQ correction in South, West and East, while prices in North and Central regions are almost flat QoQ.

- Companies may report strong 25-30% YoY EBITDA growth in H2FY21E led by 11%/5% YoY volume/realisation growth. Overall costs/te would turn almost flat YoY in H2FY21E owing to various input cost escalations compared to 4-5% YoY decline reported in H1FY21. Key trigger to watch out for, would be seasonal price hikes which usually start from mid-Jan'21 as peak construction period sets in and also necessitated this time by cost escalations. We remain optimistic about these hikes.

- Sector outperformance to continue: Industry average EBITDA/te grew by 25% in FY20, which further increased by 15% in H1FY21 to >Rs1,250/te led by firm prices and lower costs despite weak volumes. With improving volumes and prices, investors are likely to get more convinced about sustainability of the sector's current profitability.

Source : Equity Bulls

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