Cement - Stocks correction on costs concern an opportunity to buy - ICICI Securities

Cement companies under our coverage may see 20% YoY drop in EBITDA during Q4FY22E owing to sharp cost increases. Volumes may remain flat YoY while EBITDA/te may shrink 20% YoY (Rs244/te) to Rs980/te as realisation rise of 6.4% YoY (Rs322/te) may fall short of the 15% YoY (Rs566/te) cost increase. On QoQ basis, realisations shall remain flat while cost/te may dip 2.2% (~Rs100/te) resulting in 11% QoQ rise in EBITDA/te. Mar'22 demand recovery and likely strong Q1FY23E volumes (on low base) augur well for announced sharp price hikes of Rs20-50/bag across regions in Apr'22. While risk-reward is more favourable (post 20-25% stock price correction over the past four months) from a medium-term perspective, the spread between price hikes and cost increases would drive the near-term stock performance, in our view. UTCEM, ACEM and SRCM remain our top picks. We also like JKCE and TRCL. Key risks: Lower demand/prices and sharp costs escalations.

- Industry volumes may grow 2% YoY / 22% QoQ during Q4FY22E to highest-ever 106mnte, implying 90% pan-India utilisation. South is likely to lead with >15% YoY growth led by higher growth in Tamil Nadu / Kerala (due to low base). East and Central regions may see 3-4% YoY drop, while North / West regions are likely to remain broadly flat YoY. TRCL is likely to see strong >15% YoY volume growth, while most other companies may see 1-2% YoY growth or decline during Q4FY22.

- Total costs/te may drop 2% QoQ due to operating leverage, while it may rise sharply by ~15% YoY led by spurt in fuel prices (domestic petcoke up 2x YoY; imported coal ~2.5x YoY) and diesel prices (up 8% YoY, down 3% QoQ). Average pan-India prices are expected to be up by 1-2% QoQ mainly led by 5% QoQ increase in East region, while most other regions are likely to be flat QoQ. On a YoY basis, prices are expected to rise 7-8% in North, West and East regions, while South and Central regions may see 3-5% rise. In the past, fuel cost increases have been more transient (usually reverses over 4-6 quarters), while price hikes have remained more stable, resulting in EBITDA/te expansion in the medium term.

- Average EBITDA/te may fall 20% YoY but rise 11% QoQ to ~Rs980/te owing to higher cost escalations. SRCM's EBITDA fall is expected to be <10% YoY due to one-off costs in the base quarter followed by UTCEM at ~15% YoY EBITDA/te fall. SRCM may continue to lead with >Rs1,300/te EBITDA/te followed by UTCEM at >Rs1,100/te. ACEM, TRCL and JKCE may report EBITDA/te of ~Rs1,000/te. Grasim's EBITDA may rise 11% YoY owing to strong profitability in chemicals.

Company-wise key highlights of Q4FY22

• UTCEM's consolidated EBITDA is likely to decline 15.4% YoY at Rs31.2bn owing to 15.3% YoY increase in total cost/te due to higher input prices. Volumes are likely to be flat YoY while realisation may increase by 7.6% YoY. EBITDA/te is likely to decline 16% YoY to Rs1,116/te.
• SRCM's standalone EBITDA to contract 9.4% YoY to Rs10.7bn due to 15.8% YoY increase in total cost/te due to higher input costs. Volumes are likely to dip 2% YoY but increase 23% QoQ as various issues in Q3FY22 like sand-mining ban in Bihar etc. have been resolved. Blended realisation is likely to be up by 8.8% YoY but dip 4% QoQ on one-off offsetting revenue item in Q3FY22.
• ACEM's standalone EBITDA is estimated to fall 25% YoY to Rs7.3bn. We estimate 5.5%/2% YoY increase in cement realisation/volumes and 17.5% YoY increase in cost/te. The company is likely to report consolidated revenue / EBITDA / PAT of ~Rs82bn / Rs13.5bn / Rs6.2bn, respectively.
• ACC's EBITDA may decline 28.2% YoY to Rs6.2bn. Volumes may fall 1% YoY, blended realisation may be up 4.1% YoY and total cost/te may rise 12.2% YoY.
• DALBHARA's EBITDA may decline 26.2% YoY to Rs5.7bn as total cost/te shall rise by 6.2% YoY (owing to higher fuel prices) against a blended rise of 1.6% YoY in realisation. We estimate 6.8%/21% YoY/QoQ rise in volumes at 6.9mnte.
• NUVOCO's EBITDA may be down 19% YoY to Rs4.2bn due to 2.3% YoY decline in volumes and 20% YoY increase in total cost/te due to higher input costs. Cement realisation is likely to increase by 12.1% YoY.
• TRCL's EBITDA may decline 16.8% YoY to Rs3.7bn due to 16.7% YoY increase in total cost/te on increase in input costs. We expect 3.7% YoY increase in cement realisation and 19% YoY rise in volumes.
• ICEM's EBITDA is estimated to decline 34% YoY to Rs1.4bn due to 14.3% increase in total cost/te on increase in various input costs. We expect 8.4% YoY rise in cement realisation and 10.7% YoY fall in volumes.
• JKCE's EBITDA is likely to contract 18.5% YoY to Rs3.9bn due to 14.3% YoY increase in total cost/te on increase in input costs. We expect blended realisation to grow 6% YoY but volumes to remain flat.
• JKLC's EBITDA may shrink by 22.4% YoY to Rs2.1bn owing to 16.9% YoY increase in total cost/te due to higher input costs. We expect volumes to remain flat YoY and realisation to increase by 8.8% YoY.
• ORCMNT's EBITDA is likely to be down 15.4% YoY to Rs1.7bn owing to 9.6% YoY fall in volumes and 17.5% YoY increase in total cost/te due to higher input costs. Realisation is expected to increase by 11.7% YoY.
• PRSMJ's EBITDA is estimated to decline 43% YoY to Rs1.4bn. We expect cement realisation to increase 4.2% YoY, volumes to decline 21.5% YoY, and EBITDA/te to decline 53.6% YoY to Rs406/te. Consolidated TBK division may see only 4% YoY revenue growth on lower export volumes with 11% EBITDA margin.
• HEIM's EBITDA may decline 41% YoY to Rs900mn owing to 14.7% YoY increase in total cost/te due to rise in input costs. We expect volumes to be flat YoY while realisation to rise 2.2% YoY.
• Grasim Industries is expected to report standalone EBITDA increase of 11% YoY to Rs9bn owing to strong profitability in chemicals divisions; VSF's margins may be under pressure.

Source : Equity Bulls

Keywords

Cement Q4FY22 ICICISecurities ResultPreview